In any scenario, one of the most relevant pieces of intel on a property is its size.
From the size of the lot, to the size of the building, to the number of units, and the size of each individual unit.
When looking at the size of the inside of a building, there is a big difference between its usable square feet and rentable square feet.
While it might sound simple, that’s not always the case (especially when considering the different types of multi-tenant buildings).
Below, we’ll go over the difference between rentable and usable square feet, as well as how to calculate each measure and its load factor.
We’ll tie everything together at the end with an example.
Usable vs. Rentable Square Feet: Understanding the Difference
Usable Square Feet (USF)
Usable square footage is the actual space that a tenant occupies from wall to wall.
That means the usable square footage is going to be different for every tenant in a building.
The measure does not include common areas of a building, such as lobbies, general restrooms, stairwells, storage rooms, and shared hallways—it’s only the area filled within a specific unit.
For commercial tenants leasing an entire floor or several floors, the usable square footage in their unit would include the hallways and restrooms, as they are areas of space that exclusively serve their floor.
In short, from a tenant’s point of view, usable square footage could be looked at as anything within the boundaries of their floor/unit.
Rentable Square Feet (RSF)
Rentable square footage is a tenant’s usable square footage plus a portion of the building’s shared square footage.
It’s merely a matter of divvying up shared space amongst all the tenants in the building (for leasing purposes).
Think of it this way: The property owner has to pay for the entire building.
No surprise there.
But, on top of that, common areas, stairways, general restrooms, and so on are used by all tenants, without being directly leased by any of them.
By adding a portion of that common space onto a tenant’s usable square footage, rentable square footage serves as a way to factor that proportional use into a tenant’s lease.
Monthly rent will always be determined using rentable square feet.
The increase in the rentable square footage above your usable square footage can be referred to as the “load factor,” “common area factor,” or “add-on factor.”
This is generally in the 10-15% range and can be higher in some buildings.
When evaluating commercial real estate space, you’ll want to be aware of load factor, so you know exactly what you’re getting, at what cost, and what the breakdown is from rentable to usable sq/ft.
How to Calculate Load Factor
Mentioned briefly above, calculating the load factor on a commercial property is pretty straightforward.
First, find the total floor area of a building.
Then, subtract all shared square footage to get total usable square footage.
(The owner or owner’s agent should be able to give you these numbers.)
From there, divide the total floor space by the usable square footage, and you’ll have your load factor.
Load Factor Example:
Let’s say a 100,000 square foot building has 15,000 square feet of shared space.
The usable square footage would be 85,000 square feet—which you get by subtracting the shared space (15,000 sf) from the total floor space (100,000 sf).
From there, very simply, you’d divide the total square footage (100,000 sf) by the usable square footage (85,000 sf).
That would give you a load factor of 1.176, which can be expressed as a load factor of 17.6%.
In other words, 17.6% of the properties space is not usable space (from a single tenant’s perspective).
Usable vs. Rentable Square Feet Example
Let’s look at a quick scenario comparing load factors and rentable square footage to see why it’s useful to look at each measure separately.
In this example, a tenant is looking at two different office buildings:
- Both buildings have 5,000 square feet of usable space.
- The buildings have the exact same rental rates.
The only differing measure between the two buildings are their load factors.
Office Space #1:
The first option has a 20% load factor.
So, if you take the 5,000 usable square feet and multiply it by the load factor of 20%, you’d be left with an additional 1,000 sf of space.
That’s what gets portioned in as rentable space, giving you a total of 6,000 rentable square feet.
To recap, the calculation goes as follows:
- 5,000 x 20% = 1,000 square feet
(Usable sf x Load Factor = Additional Rental Space)
- 5,000 + 1,000 = 6,000 square feet
(Usable sf + Additional Rental Space = Rentable Square Feet)
Office Space #2:
The second option has a load factor of 15%.
So this time, by again multiplying the usable square feet by the load factor (5,000 x 15%), you’d be left with 750 sf of additional space.
Add those together, and you’re now left with 5,750 rentable square feet for office building #2.
Which one should a tenant go with?
Well, office space #2 has less rentable square footage, but the same amount of usable space.
From a tenant’s perspective, with space #1, you’re paying for 6,000 sf to use 5,000 sf.
With space #2, you’re paying for 5,750 sf to also use 5,000 sf, at the same rate as space #1.
In short, you’re paying less for the same amount of space—making #2 the better option from a pure-cost standpoint.
What’s left to consider are the amenities in the building.
Sure, option #2 is cheaper, but maybe option #1 has much better shared amenities that make it worth the extra cost.
For example, maybe you frequently have clients visiting the office, and want to have them passing through a nicer lobby.
Or, maybe a building has a shared kitchen. In this case, you can actual save on the costs of maintaining and stocking a kitchen, while gaining additional work space within your usable square footage.
The real answer to the above example depends on many factors.
Rentable square footage is not always so simple, either:
Sometimes, landlords will even fudge the load factor and usable square footage to the point where it becomes part of the negotiation process.
On top of digging through each measurement of space in a building, it’s important to read the fine print closely to make sure that everything is being represented accurately.
In the end, usable square feet and rentable square feet work in tandem to help you best understand a property, to know what you’re spending your money on (or what you client is spending their money on).