Real estate investors will typically rent out commercial space by the square foot. So the measurement of commercial space is, of course, important to investors.
But unlike the calculations one would typically make to derive the square footage for most other types of investment real estate, determining commercial real estate square footage requires more than a tape measurement.
In fact, there are different kinds of square-foot measurements in commercial leasing that real estate investors should understand.
With commercial rental property it essentially revolves around two areas. The gross area (the total floor space of the building), and the net rental area (the gross area less the nonrentable areas like corridors and stairwells).
In this article, I want to acquaint you how commercial real estate square footage typically evolves as an outcome of four components that concern these two areas and ultimately derive commercial space rent.
Please note, however, that my purpose is merely to acquaint you with a general overview of the commercial real estate square footage process, and is not intended to be a detailed examination.
1. Gross Building Area
This is straightforward because it is measured with a tape measure. It is the total floor area of the building from the outer surface of exterior walls and windows, including elevator shafts, utility rooms, and basement space.
For example, the outside measurements of a building 100 ft by 100 ft results in a gross floor area of 10,000 sq ft. If the building has two stories of identical floor size, then the building has a total gross building area of 20,000 sq ft. (10,000 x 2).
2.Common Area
This is space contained in the building the owner provides that a tenant does not directly occupy but would not be able to generate a revenue without. This typically includes such things as a lobby, corridors, rest rooms, utility rooms, elevator shaft, etc.
3.Usable Square Footage
This is the space contained in the tenant’s (or all tenants’) premises. We will not get into the technical terminology like “demising walls” (i.e.,the walls that separate one tenant from another) and make it simple. Usable square footage is the actual physical space a tenant occupies (even when every square foot is not truly usable to the tenant).
For example, a building with a total gross area of 20,000 that contains 4,000 sq ft. of common area results in a usable square footage of 16,000 sq ft. (20,000 less 4,000).
4.Rentable Square Footage
This is whatever square footage the landlord and tenant ultimately agree upon for the lease. So there is no universal standard for calculating rentable square feet. In many cases, however, this is generally the combination of the useable space along with a percentage of the common area.
For example, a tenant may be required to pay rent on his or her usable square footage of say 1,600 sq ft., along with (say) a 10% allocation of the common area (an additional 400 sq ft.). In this case, then, the tenant’s rent would be based upon 2,000 rental square feet.
Bottom Line
Commercial real estate square footage is an important consideration that affects how real estate investors rent out their commercial spaces. So it requires far more serious attention then presented here. But hopefully you get the idea.
A commercial building has an overall size. Tenants occupy and use most of that space, and what remains are common areas that cannot be rented. As a result, the owner will generally base the tenant’s rent on both his or her usable place plus a portion of the space common to everyone.
Here’s to your real estate investing success.
