What does a tenant actually pay rent on?
Have no fear, we’re here to help tenants understand terms like usable square feet, rentable square feet, and core factor! A quick overview of these concepts will put you, the lessee, in a better position to make quality decisions.
First, when a company negotiates a lease on commercial space, they are occupying what is called the usable square footage. The usable square footage is the square footage within their four walls. The rentable square footage is the usable square footage PLUS, a tenant’s proportionate share of the common areas. Tenants will pay rent on their rentable square footage, NOT the usable square footage.
Examples of these common areas of a building may include any or all of the following: lobbies and atriums, elevator lobbies, public restrooms, janitor/electric/phone closets, and mechanical rooms. Landlords want to capture revenue on these common areas, which are shared and made available for all tenants in the building. This is why tenants pay rent on their rentable square feet.
With all this information we can then determine a buildings core factor. The core factor can be calculated by dividing the rentable square footage by the usable square footage.
It is imperative that we, as Tenant Rep’s educate our clients on understanding this number in order to allocate costs and compare different options.
The scenario below will illustrate this process.
A new company, called JSBN Company is looking for 10,000 square feet of usable space to operate their business and is evaluating two opportunities.
Building A has 10,000 SF of usable space and a core factor of 22% (1.22) and Building B has 10,000 SF of usable space and a core factor of 15% (1.15). Both buildings are offering $3.00 per rentable square foot.
In this scenario, JSBN Company has a choice of leasing 12,200 rentable square feet (10,000 x 1.22 or 22% core factor) in Building A, at a monthly rent of $36,600, or leasing a more efficient 11,500 rentable square feet (10,000 x 1.15 or 15%) in Building B, at a monthly rent of $34,500 per month.
When calculating the difference in JSBN Company's rental costs, JSBN will save $2,100 per month and $25,200 over one year if they locate in Building B for the same amount of usable square footage.
*Important Note
For more than a century, The Building Owners and Managers Association International (BOMA) has set the standard for measuring rentable area in existing and new office buildings. Throughout the years, BOMA continues to revise the standard and change it based upon the evolution of the market and office design. In 2017 (the latest version of its Office Standard) some changes include finished rooftop terraces, and balconies being included as rentable area. Also, Major Vertical Penetrations at their “lowest level” are now classified as Building Service Area and included as part of rentable area. Subtracted from rentable area starting in 2017 are Public Pedestrian thoroughfares and Enclosure Limit conditions.
