rentable vs. usable square feet in a commercial lease
If you’re a commercial tenant in New York City, you may be wondering: how do rentable vs. usable square feet work in a commercial lease? We’ve got you covered.
As a tenant, you’ll need to know how rentable vs. usable square feet work in a commercial lease. As part of our negotiations with a landlord, the landlord or his/her brokerage team will give us an asking base rent (which we will then negotiate). It’s important to note that for budgeting purposes that that asking base rent will be applied to rentable square feet when calculating expected annual rent, but includes square footage you can’t physically occupy, per se.
So, what’s usable square feet?
Usable square feet is the square footage in your commercial space that you can physically occupy – or use. When it comes to rentable vs. usable square feet, the difference is called a loss factor. Rentable square feet includes common areas like elevators, bathrooms and hallways, meaning you pay for these common area spaces as part of your rentable square feet. Usable square feet includes only the area of the space to the perimeter of the walls – think of it as the area you can carpet, or “carpetable” square feet. The only difference between usable and carpetable is that usable square feet is measured up to and including the wall thickness, and includes vertical structures like columns, whereas carpetable square feet is literally only the square feet you can carpet. The difference is typically not material, so for space planning purposes we talk about usable square feet.
Why does this matter?
Loss factor (the difference between rentable vs. usable square feet) is different if you’re considering a partial floor of a building vs. a full floor. On a partial floor, there is more common area to take into consideration, because there are more divided spaces. The average loss factor on a partial floor is 35%, and the average loss factor on a full floor is 27%.
The bad news is this loss factor is essentially a profit center for landlords, but the good news is the loss factor tends to stay consistent across all buildings in the New York City commercial market, with the exception of specific upscale buildings where the market bears a higher loss factor (in other words, where rent is marked up more than usual).
In New York City, you pay rent based on rentable square feet, but want to use [rentable square feet* loss factor = usable square feet] for space planning purposes. Your employees can only occupy the usable square feet; if you’re planning for growth hiring, downsizing or just space planning based on a suggested amount of space per employee, you’ll want to calculate usable square feet, and translate this into rentable square feet. As your tenant rep, part of our job is to discuss this as part of our initial space needs meeting. We can also bring in an architect to do a space plan to determine how many square feet you need based on number of employees, desired layout, and space amenities.
In other words, get a tenant rep who knows what they’re doing….like Vicus!