There are many different factors that contribute to the total cost of commercial rental space. Understanding these factors is key to ensuring you’re getting the best deal possible for your business.
One of the first things to understand is that most commercial leases are based on usable square footage. This means you pay for the space that your business occupies, but you also pay a percentage share for any common areas within a building.
Rentable square footage
If you are looking to rent commercial space, one of the most important factors you will need to consider is rentable square footage. This number will be presented in the property’s listing and is a vital metric to understand.
This number will include all of the usable square feet occupied by your business and a percentage of the shared areas in the building that are also included in the total leased area. Common spaces in a building include the lobby, hallways, elevators and other parts of the structure that all tenants can use.
Landlords typically charge a common area maintenance (CAM) fee for these areas. They can vary, but they usually cover maintenance and cleaning of the parking lot, landscaping, sidewalks, bathrooms, hallways and utilities.
The CAM fee is calculated by dividing the amount of rentable square footage on the premise by the pro-rata share of a loss factor, which can be called the core factor or the common area factor. This factor is usually equal to 1.10 to 1.20 percent of the leased usable square footage.
Usable square footage
Usable square footage is the space that a tenant has access to within an office building or commercial property. It includes hallways, private restrooms and structural features such as columns and recessed entries. It does not include shared areas such as elevator shafts or stairwells.
However, it is important to note that the term “usable” is not entirely accurate. Depending on how a company uses an entire floor, spaces like electrical rooms or janitor’s closets may be counted as usable space.
In addition, a building’s load factor is also used to calculate rentable square feet. Load factors are based on the percentage of common area in the building, and they increase rentable square footage by anywhere from 10 to 20%.
Common area factor
The common area factor, load factor, add-on factor or core factor is the space that tenants share with other tenants in commercial buildings. It can include lobbies, elevator shafts, stairwells, restrooms, maintenance closets and utility rooms.
The commercial real estate industry has standardized how these shared spaces are measured. Landlords and brokers can easily understand how to calculate the common area factor in a building by using the BOMA (Building Owners and Managers Association) standard floor measurement system for commercial buildings.
When landlords advertise a property for rental, they will usually include the common area factor in their square footage disclaimer. This will allow the tenant to calculate what they are actually paying for, including all of the shared space and features that are not available for private use by individual tenants.
The length of the commercial lease term is an important factor to consider. It will depend on the type of company and how they plan to use the space.
Long-term leases are ideal for companies who want to lock in a rental rate for an extended period of time. However, they come with some limitations as well.
Besides the amount of rent, you also have to take into account other costs associated with commercial real estate. These include property taxes, insurance, utilities and more.
Choosing the right commercial lease term is a complex balancing act for both parties. The term you choose should allow you the maximum flexibility while meeting your business needs.