Usable vs. Rentable Square Footage in Industrial Real Estate
Understanding the difference between these two key square footage metrics is critical to calculating your lease rate correctly.
When looking to lease space in a commercial real estate property, one of the main determinants of a tenant’s lease rate is the amount of square footage considered under the contract. However, commercial leases rarely use only the square footage a tenant will occupy as the basis for a lease calculation, and so it is important to know the difference between two metrics: usable square footage and rentable square footage.
What Is Usable Square Footage?
Usable square footage refers to the square feet a tenant will exclusively have the right to occupy in a property. In an industrial property, this would be any warehouse and office space the tenant has sole access to, but it would exclude any common areas, like bathrooms, hallways, and amenity space that may exist in multi-tenant industrial assets.
What Is Rentable Square Footage?
Rentable square footage is the basis for a tenant’s rental payments and is calculated by taking usable square footage and adding a pro rata portion of a building’s common areas. For example, if a distribution center has two tenants, each with 30,000 square feet of usable square footage, plus 5,000 square feet of common space, each tenant would pay their lease rate calculated on the basis of 32,500 rentable square feet.
In the case of a single-tenant building, rentable and usable square footage would be the same, as the property’s tenant has exclusive access to everything within the building.
Related Questions
What is the difference between usable and rentable square footage in industrial real estate?
In industrial real estate, the difference between usable and rentable square footage is not usually applicable. Usable square footage (USF) refers to the area a commercial tenant can actually use, which generally includes hallways and private restrooms, as well as structural features like columns and recessed entries. Rentable square footage (RSF) refers to the area a tenant pays rent for, which includes the tenant's USF plus a portion of the common areas. Source
How is usable square footage calculated in industrial real estate?
Usable square footage in industrial real estate is calculated by subtracting the common areas from the total square footage of the building. Common areas include lobbies, stairwells, elevators, and other shared spaces. The Building Owners and Managers Association (BOMA) has created standards for measuring commercial buildings, which are often used to calculate usable square footage. Tenants considering signing a long-term lease may wish to have the space remeasured by a certified professional before making a final decision.
SourceWhat factors affect the rentable square footage of industrial real estate?
The rentable square footage of industrial real estate is affected by the load factor, which is calculated by dividing the rentable square footage by the usable square footage. The load factor helps commercial tenants determine how much common space they will be paying for. The load factor can range from as low as 3% to as high as 25%, depending on the amenities offered. Additionally, column spacing can impact the usable square footage of an industrial property, as columns spaced irregularly or at small intervals can limit the movement of forklifts and other loading equipment, as well as impact the configuration of shelves and other storage racks. Wider or deeper bay spacing near loading docks can provide an additional benefit by making loading operations safer and more efficient. Source and Source.
How does usable square footage affect the value of industrial real estate?
Usable square footage does not typically affect the value of industrial real estate, as it is not usually applicable to multifamily and industrial properties. Industrial properties are usually valued based on the size of the land, the condition of the building, and the potential for future development. For example, a property with a large lot size and potential for expansion may be more valuable than a property with a smaller lot size and no potential for expansion. Additionally, the condition of the building and the quality of the construction can also affect the value of industrial real estate.
What are the benefits of renting industrial real estate with higher usable square footage?
The benefits of renting industrial real estate with higher usable square footage include more space for operations, increased storage capacity, and the ability to accommodate more employees. Additionally, higher usable square footage can provide more flexibility for businesses to expand their operations in the future.
For example, a business that leases an industrial property with higher usable square footage may be able to add more production lines or storage racks, or even expand their office space. This can help businesses save money in the long run, as they won't have to move to a larger space if their operations grow.
For more information on Usable Square Feet vs. Rentable Square Feet in Commercial Real Estate, please visit this page.
What are the drawbacks of renting industrial real estate with lower usable square footage?
The main drawback of renting industrial real estate with lower usable square footage is that it can limit the movement of forklifts and other loading equipment, as well as impact the configuration of warehouses’ storage racks. This can reduce the efficiency of operations at most distribution and logistics buildings. Additionally, if a building has narrower or shallower bay spacing near loading docks, it can make loading operations slower and less efficient.
Source: What to Know Before Making Your 1st Industrial Property Investment