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Calculating A Commercial Lease Rent Per Square Foot – Winston Rowe & Associates
Definitions, calculation and formulas for the Gross Building Area (GBA), Usable Square Footage (USF), Rental Square Feet (RSF), Net Rentable Area (NFA) and loss ratio. This article details each and there meaning
By: Winston Rowe & Associates
Typically, commercial space is rented by the square foot, and for this reason, the measurement of commercial space is very important.
A commercial building has an overall size, called the gross building area (GBA).
The GBA represents a building's total floor area, as measured from the outer surface of exterior walls and windows, and includes elevator shafts, utility rooms and basement space.
The percentage of the building that cannot be rented is called the loss percentage.
Typically, the owner takes a portion of that loss and tacks it onto the usable space to make the net rentable area (NRA).
Usable square footage, (USF) is the actual space contained within a tenant's or all of the tenant's premises, tenants are able to occupy and use most of that space.
Rentable square footage (RSF) is the number of square feet on which the tenant's rent is based.
Ultimately, the RSF is whatever number the landlord and the tenant agree on for purposes of their lease.
Definitions of Square Foot Calculations:
Gross Building Area = Total area of all floors, including basement
Usable Square Footage = Actual space occupied by a tenant; for an entire building. Gross Building Area less Common Area
Rentable Square Feet = Defined by lease, but often the USF + an allocated portion of the Common Area
Loss Ratio = Common Area / Gross Building Area
Formulas for Square Foot Calculations:
Price per Square Foot = Price / Gross Building Area or Net Rentable Area
Income per Square Foot = Gross Scheduled Income / Gross Building Area or Net Rentable Area
Expenses per Square Foot = Operating Expenses / Gross Building Area or Net Rentable Area
To calculate the Gross Scheduled Income:
Gross Scheduled Income (annual) = Total rent payable for that year under existing contracts for occupied space + Total potential rent at market rates for vacant space.
When negotiating the rent for your commercial lease, you want to translate the dollars per square foot into the actual dollar amounts to head off future measurement disputes.
Winston Rowe & Associates prepared this knowledge base article.
They are a commercial real estate advisory and due diligence firm that specializes in financing of commercial real estate transactions.
They can be contacted at 248-246-2243 or visit them online at http://www.winstonrowe.com