June 27

Understanding Commercial Lease Floor Areas – Gross vs Net Leasable Area

When talking about commercial real estate, everything is calculated based on floor space. For example, development costs, how much area can you lease, and even the potential annual revenue are all dependent on the square footage of the property.

But how do you accurately measure your floor space?

Unfortunately, measuring floor space is not as straightforward as you might think. In fact, there are many different ways to measure a building and its floor space. From the total footprint of a building to the area available for commercial tenants, it’s important you know exactly what someone means when they say a building is X number of square feet.

Whether you’re a developer, investor, tenant, or buyer, it’s crucial you understand commercial lease floor areas and how they relate to your financial goals.

Seems complicated?

Let us clear things up for you.

Types of Floor Area

In architecture, construction, and real estate, floor area (also known as floor space) is the area taken up by a building or part of it, and is measured in square feet or square meters. Of course, as we mentioned above, things are more complicated than that. One must consider whether external or internal walls, corridors, stairwells, lift shafts, and more are calculated into that measurement.

Here’s a look at the different types of floor area.

Gross Floor Area (GFA)

Gross floor area is the total area of the building measured all the way out to the external face of the external walls.

In other words, it’s the total footprint of the building, multiplied by the number of floors.

Features excluded from the gross floor area vary, though they often include the roof, covered walkways, terraces, porches, chimneys, air shafts, roof overhangs, trenches for piping, and other utility connections.

Here’s why gross floor area is important:

  • It’s the public number that brokers use to advertise available space or calculate previous sales numbers
  • The city uses this number to determine planning numbers like the building’s density or floor space index
  • It’s used to calculate applicable levies
  • Construction companies need to know how many walls and floors they need to build and will look to the gross floor area first when creating their plans

Though this area does not always drive development costs or the amount of revenue you stand to gain from leasing the space, it’s an important one to know when starting a new commercial development project or investment endeavor.

Gross Internal Area (GIA)

Gross internal area is the total area of the building measured only to the internal face of the external walls.

Since the external wall area is excluded, this measurement provides the total useful area contained in the building.

Some of this space will be dedicated to common building features and facilities, such as stairs, escalators, lifts, machinery rooms, pumping rooms, plumbing, ducts, vents, public toilet areas, and other service or maintenance rooms.

Net Internal Area (NIA)

Net internal area is the usable area available to occupants of the building. It’s calculated by taking the gross internal area and subtracting floor areas being used by:

  • Lobbies
  • Machinery rooms on the roof
  • Stairs/escalators
  • Lifts
  • Columns
  • Toilet areas
  • Ducts
  • Risers

Tenants leasing a commercial property like a store or office space are only interested in the usable space of the premises, since that’s where they can fit displays, storage units, computer desks, and equipment. Everything else is not important. In other words, when someone is looking to buy or lease a commercial property, they want to know what the net internal area is.

Commercial Leases and Building Measurements

Commercial leases are almost entirely based on the leased area. However, that area can be measured differently and can even include additional areas not contained within the boundaries of the leased property. This makes the lease more expensive, though not necessarily more usable.

Because of this, investors look for properties with the maximum net internal area for the smallest given gross floor area.

In other words, they look for properties with the most usable space within the smallest building possible. Doing this will allow them to charge premium rent rates that tenants are willing to pay because there is plenty of usable space for tenants to use to run their businesses.

Ideally, tenants only want to pay for the net internal area. After all, the net internal area is the space that they get to use and will generate them revenue. However, this rarely happens.

If investors charge tenants just for the net internal area, there are large amounts of building space, though unused by the tenants, sitting idle and not generating the investor any money. Remember, the investor pays for that unusable space. By not charging tenants for that same space, they lose money, making the project unsustainable.

In the end, commercial tenants always pay for more area than they physically get to use.

What is Gross Leasable Area (GLA)?

After learning about the different types of floor area, you might be asking yourself what is gross leasable area then? The gross leasable area is the total area designed for exclusive use by a commercial tenant plus common areas, elevators, common bathrooms, stairwells, and other parts of the building the tenant doesn’t actually occupy.

If the building is leased to a single tenant, then the gross leasable area is equal to the gross floor area. Simple enough.

If there are multiple tenants leasing different parts of the building, the gross leasable area is calculated based on the shared walls between them, plus those extras mentioned above.

To get the gross leasable area for one tenant, you would measure from the center of the common wall (shared with another tenant) to the outside face of the external wall. The external wall can be a shopfront, a window display, or just a flat wall. Regardless, it is included in the gross leasable area. Similarly, though the area occupied by the shared wall is not usable, it is also included in the gross leasable area of both tenants.

Any structural members – columns, arches, or truss structures –  that are enclosed within the boundaries are also included in the gross leasable area.

Retail leases will commonly use gross leasable area as a basis for rent calculations. The problem is, many tenants think they’re leasing X amount of square feet for their business only to find out that the actual square footage is quite smaller.

What is Net Leasable Area (NLA)?

The net leasable area is the space within the leased unit that’s actually available to the tenant for use.

This area excludes the external walls, as well as common areas and utility rooms, which are not contained within the unit. However, it does include basements, storage areas, mezzanines, upper floors, and other floor areas which can be used by the tenant.

Unlike most retail leases, office leases typically base the rent rate on the net leasable area rather than the gross leasable area. However, there’s a catch – office tenants still need to pay fees for the common areas.

These areas do not fall within the boundaries of any leased units and are not used directly by business owners on a daily basis. However, they are used by the businesses, their employees, and their customers at some point.

Furthermore, these common areas require a fair share of maintenance and building services such as lighting, electrical/elevator maintenance, plumbing, cleaning, gardening, and more. These cost a considerable amount of money each year and are not going to be paid for by investors; that burden is placed on tenants leasing the space.

Core Factor/Pro-Rated Share of Space

The core factor is also referred to as a load factor or a pro-rated share of space.

If the entire building is leased by a single company, the calculation of the core factor is really simple – it’s 100%.

When multiple tenants share the same building, the shared areas are added in proportion to the net area leased by each tenant.

Let’s make this easier to understand by considering the following office lease scenario: 

You rent 10,000 sq.ft (net) in an office building that has 5,000 sq.ft of net leasable area and another 5,000 sq.ft of common areas and service rooms.

You have 20% of the building for your exclusive use. Your core factor is 20%, which means you’ll pay for 1/5th of the common areas.

Therefore, your rent will be calculated based on 10,000 sq.ft of net leasable area and 20% of 5,000 sq.ft of common areas, for a total of 11,000 sq.ft.

This is important when a tenant is looking to lease a commercial space. If a tenant does not understand the differences between the areas, or doesn’t know about the core factor calculation, they could end up overspending on rent without even realizing it.

BOMA Standard for Measurement

When drafting or negotiating a commercial lease agreement, it’s important to include and look for the standard which defines how the floor area will be measured. Remember, though the gross leasable and net leasable areas are widely used calculations in commercial leases, the GFA, GIA, and NIA have the potential to vary.

The Building Owners and Managers Association – BOMA – is the widely accepted authority for building measurements. BOMA has specific standards for different commercial buildings including office spaces, retail stores, industrial facilities.

The information above is derived from the BOMA standards, although the literature includes extensive details on how to calculate building area for a wide variety of conditions. Please visit the BOMA website for more information on building measurement standards.

Wrapping Up

In the end, it’s important to understand common terms related to commercial leases and building sizes, whether you’re an investor or tenant looking to lease a space and run a business. Not knowing the differences, or how rent is being calculated, can cause a lot of financial strain, quickly put you in a hole, and ruin your investment or business dreams.

Are you ready to advertise your commercial property as available to tenants and want to ensure potential business owners know all the different measurements? Then be sure to use our highly advanced and easy to use online platform, CREOP, designed to make marketing commercial retail space visually appealing and informative. Get in touch today and see how we can help you lease your property faster, with highly qualified tenants you can rely on.

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