Usable area, common area, rentable area, and gross-up are all terms you will hear in the world of commercial leasing. It is essential that you have a general understanding of what these words mean, and the difference between them, because all three play a role in calculating the rent that you’re paying.
Usable Area
Your ‘usable area’ is the space that you occupy; it’s for you and your company’s use alone. If you walk through your suite entrance, your useable area is everything in your suite.
Common Area
The ‘common area’ of your building includes all the areas of the building that you benefit from and share with other tenants. So, the building’s common areas include the entrance lobby, elevator lobby, corridors, washrooms, shared boardrooms, gyms, building showers, electrical rooms, janitor closets, elevators, stairwells, etc.
Rentable Area
If you look at the rent you pay relative to your usable area, you will realize pretty quickly that you’re paying for more space than you have in your suite.
This is because you are also paying for your proportionate share of the common areas of the building. If your space is 5% of the total leased area of the building, you’re going to pay for 5% of the lobby every month, as well as 5% of the bathrooms, hallways, washrooms, and all other common areas.
So, your ‘rentable area’ is your usable area plus your proportionate share of the common areas of your building.
Gross-Up
The ‘gross-up’ is the total common area of a building expressed as a percentage of the total building area.
For example, if the total common area of your building is 12,000 sq. ft. and the total area of your building is 100,000 sq. ft., the gross-up of the building would be 12% (12,000 sq. ft. / 100,000 sq. ft.).
Gross-Up Factor Formula
Your Landlord calculates your rentable area by using what’s called a ‘gross-up factor’ (also known as a ‘common area factor’ or ‘load factor’). The gross-up factor is then multiplied by your usable area to calculate your rentable area.
Here’s the formula used to calculate your rentable area:
Rentable Area = Usable Area x (1 + gross-up)
So, if your usable area is 5,000 sq. ft. and the gross-up is 12% (12% of the total building area is common space); your rentable area would be:
5,000 sq. ft. x (1 + 0.12) = 5,600 rentable sq. ft.
Lower Gross-up = More Usable Space
Have you ever toured office spaces that are roughly the same rentable area but feel different sizes? This feeling may be because of different layouts. But, it can also be an indication that the buildings have very different gross-ups.
Let’s assume that you are comparing two different spaces of 6,000 rentable sq. ft. (commercial space is typically marketed based on the rentable area), in two separate buildings. One building has a gross-up factor of 10%, and the other building has a gross-up factor of 19%. That would mean that the usable area of the building with a 10% gross-up would be 5,454 sq. ft. and the usable area of the building with a 19% gross-up factor would be 5,042 sq. ft.
That’s a difference of 412 sq. ft. of usable space. To put that difference in the usable area into perspective, that’s enough space for two additional large offices, a generous kitchen, a meeting room, or six work stations.
Although the rentable area of both options is the same, you will have more usable space in a Building with a lower gross-up.
Inefficiency or Amenities?
Using the example from above, the 9% difference in the Gross-Up may be a result of inefficient building design. Still, it could also be the result of a building having common area amenities like a gym, showers, and board rooms.
So, the cost per usable square foot of an option may be higher, but it could represent great value to you if the building has amenities that are important to you and your team.
Do you have a question? please send me an email at jeff.daniels@royallepagecommercial.com.