By DOUG PRICE
A monumental decision for your healthcare practice is choosing where it will be located and how much space you need. As you consider your top property options, you will encounter layers of information and definitions that can have a significant impact on both your success and budget. When it comes to the size of your space, there are a few items and definitions that often confuse even savvy tenants to the point of making costly mistakes. One of those items, is understanding the difference between Usable Square Footage and Rentable Square Footage.
Usable Square Footage
Usable Square Footage or USF is the total usable floor area of a space or building. Usable Square Footage is measured from the outside or outer surface of any exterior walls and windows, including the middle of any interior walls that are adjacent to other spaces, hallways or common areas. Similar to how homes are assessed, the measurements are from the outside of the exterior walls, not by measuring from the inside of the walls.
Usable Square Footage is the space the tenant will actually occupy, as compared to the Rentable Square Footage the tenant will pay rent on. Usable Square Footage can sometimes also be called Leasable Square Footage.
Architects and Tenants will often measure a space from the inside of all the walls of a space, and in doing so, will calculate a square footage that is lower than the landlord’s calculation of the Leasable or Usable Square Footage. Although this is both helpful and needed when designing a space and getting budgetary numbers, this is not the same as Usable or Leasable Square Footage. Measuring the interior walls of a space will not get you to an accurate measurement of USF.
When measuring a space, it’s important to understand the location of the measurements as well as even the thickness of the walls to calculate the correct size. An architect or space planner can help ensure a more accurate measurement than most individuals trying to use a tape measure or laser. Additionally, comparing in-person or field measurements to a verified CAD document can also decrease the margin of error.
Usable Square Footage should not include any common areas of the building such as public corridors, hallways, common areas, restrooms, etc. Again, the definition of Usable Square Footage is the official measurement of the space or square footage you will actually occupy.
Rentable Square Footage
Rentable Square Footage or RSF is the total square footage that tenants pay rent on and equals the Usable Square Footage plus the tenant’s pro-rata share of the Building Common Areas; such as: lobbies, public corridors, hallways, restrooms, utility closets, fire-sprinkler rooms, etc. When it comes to Building Common Areas, an example would be an office complex that has ten tenants utilizing a common area, where the ten tenants would share the proportionate amount of square footage based upon their percentage of the Usable Square Footage they occupy of the building.
The same concept is typically the case when also dividing the cost of maintaining any common space; it is divided on a pro-rate scale. The square footage and cost would be included as a part of the Rentable Square Footage.
Rentable Square Footage differs from Usable Square Footage in that Usable Square Footage is the tenant’s specific space they occupy whereas Rentable Square Footage also includes a portion or percentage of the property’s common areas.
The pro-rata share has many synonyms and is often referred to as the Rentable/Usable (R/U) Factor, the Core Factor, the Loss Factor or the Common Area Factor. Regardless of what title it receives, the amount will typically fall in a range of 1.10 to 1.20 percent of the Usable Square Footage, depending on the particular building. Typically, a tenant who occupies an entire floor of an office building will have a lower R/U Factor compared to a tenant who occupies only a portion of a floor.
To show the math on this as an example, if the Usable Square footage is 3,000 square feet, and the R/U Factor or Common Area Factor is 1.20 percent or 20%, you take: 3,000 square feet x 1.20 = 3,600 Rentable Square Feet.
Buildings or properties that offer additional amenities such as conference room facilities, fitness gyms or other property benefits will often include those square footages into the common areas as well, which can increase both the R/U Factor and the overall Rentable Square Footage.
Properties such as Retail buildings or single-story office or industrial buildings that don’t have any noticeable common areas or interior public corridors may still have a very small or minor additional R/U Factor which increases the Rentable Square Footage to them, in the form of a common building utility closet or fire alarm room or fire-sprinkler riser room.
When evaluating the Rentable Square Footage of a property, it’s important to understand that you are paying for additional square footage as part of your pro-rata share of the common areas in addition to your Usable Square Footage. You will then also pay your pro-rata share of the expenses to maintain the common areas and overall property.
A Common Mistake
One of the most common mistakes that tenants make is basing their actual square footage needs on the Rentable Square Footage number they see advertised. A tenant will often speak with an architect to determine the approximate size of space they need, but won’t realize that there could be a substantial difference in the size space they need vs. the final Rentable Square Footage, especially if they are considering an office building.
In the example we used above, if a tenant believes they need 3,000 Usable or Buildable Square Feet for their space, and doesn’t understand the difference between usable and rentable, they will go search for 3,000 square feet, instead of a space that is actually 3,600 Rentable Square Feet with 3,000 Usable Square Feet or 3,000 Square Feet they can actually build out and occupy.
This mistake can result in a number of issues, including wasting weeks or months of time evaluating spaces that are the wrong size; or, if a lease is signed prior to the tenant fully realizing the mistake, you can get committed to a space for five to ten years in a lease agreement for a space that is too small from day one.
Overall, understanding the difference between Usable and Rentable Square Footage is a small but important step in mastering commercial real estate concepts that can help you maximize every opportunity you have, and ultimately, maximize your profitability through real estate.
Doug Price is an agent with CARR Healthcare, the nation’s leading provider of commercial real estate services for healthcare tenants and buyers. Every year, thousands of healthcare practices trust CARR to achieve the most favorable terms on their lease and purchase negotiations. CARR’s team of experts assist with start-ups, lease renewals, expansions, relocations, additional offices, purchases, and practice transitions. Healthcare practices choose CARR to save them a substantial amount of time and money; while ensuring their interests are always first. Contact Doug at Doug.Price@carr.us