When negotiating a commercial real estate lease, you’re bound to hear the terms “usable square footage” and “rentable square footage”. While they generally both refer to the amount of space your business will lease, there are definitive differences. And it’s crucial that you understand those differences – or it could cost you.
What Is the Definition of Usable Square Footage?
Usable square footage, or USF, is the space that your business and employees occupy exclusively. This includes the space for your company’s furniture, equipment, and employees, and it’s the space that is not shared with any other tenant in your building.
What Is the Definition of Rentable Square Footage?
Rentable square footage, or RSF, is a number comprised of your usable square footage in addition to your company’s share of the building common areas. This can include public restrooms, fitness centers, hallways, and lobbies that are shared with other people in the building. Rentable square footage is calculated by multiplying your usable square footage by the building’s common area factor. This means, for example, if Tenant A has a 5,000 SF office space and the common area factor is 20%, Tenant A’s rentable square footage would be 6,000 SF.
How Is the Common Area Factor Calculated?
Common area factors vary by location, but often range between 12 and 20%. Each tenant’s percentage is determined by calculating their pro rata share of the floor they occupy – or the percentage of space that they occupy in relation to the total floor square footage. This means that if your floor has multiple tenants, it will also have more common area space (hallways, elevator lobbies, shared restrooms), and the common area factor will be higher. Conversely, if your business occupies an entire floor, there will be less overall common area space. Your restrooms or corridors will not be shared with other tenants, thus you are likely to have a lower common area factor.
Exceptions to Standard Common Area Factor Calculations
There are exceptions when certain buildings have a lot of amenities or common area space, for example. Landlords want to stay competitive within the market, so they will often pick a market competitive common area factor number that is more in line with comparable properties. This helps them draw tenants that could normally be deterred from renting due to the price increase their rent would take with a high common area factor.
How You Calculate Your Rent Based on Your Square Footage
The amount a tenant pays to lease their office space depends on how much space they rent. But this number is not calculated based on the square footage of your office space alone, but rather the square footage of your office space in addition to your share of the common area space. This means that when you’re calculating your monthly rent, you need to use your rentable square footage. The usable square footage will help you understand the exact amount of space your employees will physically occupy, but for rent, landlords factor in the use of additional building common areas.
When evaluating your lease options, it’s important to remember that common areas differ from building to building. Two different 5,000 SF office spaces with the same lease rate could have vastly different overall rent costs if the common areas are not similar in size.
Want help making sure you’re getting the best deal with your next lease? Reach out to a Rokos team member. We are happy to help you navigate the future of your office space.
Rokos Advisors is an award-winning Minneapolis – St. Paul-based commercial real estate/tenant representation firm specializing in helping businesses find the perfect office or industrial space for their company.