There is a common problem in the commercial real estate industry that will directly affect your bottom line. The worst part is that it occurs all too often. The problem is not understanding the difference between usable square footage (USF) and rentable square footage (RSF).
Believe it or not, I’ve seen an office lease get terminated less than 48 hours after it was signed — the tenant had a right to terminate within the first six months — because the tenant didn’t realize the difference between usable square footage and rentable square footage. Not every building is the same. Some are more efficient, and some are less. Therefore, it’s vital to your business to understand which category your space falls under before signing a lease. If you don’t already know the difference between the usable and rentable square footage, keep reading.
Rentable square feet
Rentable square footage includes a building’s common area spaces, such as hallways, lobbies, bathrooms and elevators. All tenants will pay their pro rata share of the common area space. How much common space there is will dictate your final square footage.
Consider the following example: Your building is 100,000 RSF, and there is a 15 percent common area factor. Your usable space is 5,000 USF. Multiply that by 1.15 percent, and you come up with 5,750 RSF. Don’t be fooled into thinking your space is smaller or bigger than it actually is.
Usable square feet
Usable square footage is the space that you will physically use whereas the rentable square footage is the space you are paying on. If you want to figure out the reverse of what your USF is then try the following equation: 5,750 RSF divided by 1.15 percent. There are several ways to measure commercial space, but suburban architects most commonly use the BOMA Standard.
In some instances, a building is so inefficient that the landlord needs to apply a market rate to the common area to be able to compete with the market. You will commonly find this in a building that was originally built for a single tenant occupant but becomes a multi-tenant building. Whatever the case may be, if you want to avoid any last minute confusion about how large your space is, one of the first orders of business is to request a CAD (computer-aided design) plan of your potential space.
More about CAD plans
Either your own architect or the building architect will use industry technologies to measure the USF of the space via a CAD plan. Once they have the USF, they then apply the common area factor, which as seen in our earlier example will yield a final RSF number. The tenant who terminated a signed lease in my story from above never verified the USF/RSF even though the architect was supplied with the CAD drawings. Once the tenant realized the space was smaller than previously thought, the decision was made to move on to a different building.
Don’t be shy with your trusted professional
In conclusion, it’s fair to believe that most tenants encounter this problem because they aren’t working with a trusted real estate advisor. It’s not your job to understand the ins and outs of negotiating an office lease. So, hire someone whose job it actually is. There are many potential pitfalls that your broker will look for, and they might not light shed on all of them right away. The next time you speak with your brokers, feel free to ask them about your USF vs RSF. If brokers don’t know the information off the top of their heads, they can always reference your lease or make a quick phone call to your landlord. Remember, this information will directly affect your bottom line. So, don’t be shy: Make the call.
The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
Based in Princeton, N.J., Vinny specializes in tenant and landlord representation for Colliers International, working directly with his clients in the acquisition and disposition of office space. For more commercial real estate insight and trends, follow Vinny on Twitter.