When you are negotiating a commercial real estate lease, one of the factors that will let you know if your potential lease is reasonable is how much of the square footage of the building is actually usable or rentable. However, knowing the difference can be more confusing than you might think.
What is usable square feet?
Usable square feet refers to the actual area that the tenant intends to occupy. If it is a lease for only part of a floor, this will include office space as well as any private restrooms, should they be included. Anything like columns or recessed entryways are included when usable square feet is calculated. When it is a full-floor lease, the usable square feet also refers to everything inside of the floor, not including stairwells. Any common areas that are specific to floor use, such as hallways, bathrooms, kitchens, and reception desks, are included.
What is rentable square feet?
Rentable square feet includes the usable square feet, but also includes a share of the common areas of the building; for example, the meeting rooms, restrooms, stairways, and lobbies. This share is pro-rata, which is a term that essentially means that tenants pay for common areas in proportion to the amount of space they are leasing.
Calculating the load factor
When calculating rentable square feet, the landlord will use the load factor, or common area factor. This is a number calculated from the percentage of common areas in the commercial real estate building. For example, if a building has 100,000 square feet total, and a tenant was renting 50,000 square feet of that, the load factor is calculated by dividing the total rentable square feet by the usable square feet. In this scenario, the load factor equals two.
After that, the load factor is multiplied by each tenant’s usable square feet to establish the rentable square feet. For example, if the landlord in the previous example wished to rent out 5,000 square feet to one tenant, they would multiply 5,000 by the load factor of two to calculate the rentable square feet, which would be 10,000. Then, they would multiply the rentable square foot amount by the rent rate in order to calculate the rent.
When Rare Space helps your business to negotiate a new commercial real estate lease in Denver, this is one of the factors we will use to determine whether or not you are getting a good deal. Knowing exactly what you are getting and comparing it to this figure will help us determine whether the cost of the common space is truly worth the load factor.
Load factors are usually represented by percentages, and are generally around ten to 20 percent. Partial-floor tenants may also pay a share for the floor common area, in order to use the hallways and restrooms, for example. In these cases, the landlord calculates the usable square feet multipled by the amount of space the tenant uses on the floor in order to figure out the rentable square feet, which is then multiplied by the load factor.
When you are negotiating a lease for commercial real estate in Denver, Rare Space can help you with our tenant representation services. Allow us to help you navigate the complex process of negotiation a commercial real estate lease. Contact us today.