Rentable Square Footage vs Usable SF: What’s the Difference?

The space that retail and office tenants have in commercial real estate properties can be measured in two ways: rentable square footage and usable square footage. Although the two may sound like they refer to the same space, there’s actually an important difference between them.

This difference should be understood when renting multi-tenant retail and office properties. It’s usually not used for industrial or multifamily properties and is moot when a single tenant rents a retail or office building.

What is Rentable Square Footage?

Rentable square footage (RSF) is the amount of space a tenant pays rent for. It generally encompasses any space a tenant uses, including private and shared areas.

For the purposes of RSF and USF, private areas are those that the tenant has full and exclusive use of. These include leased open spaces and rooms, along with any private hallways, private storage, private restrooms, or other areas fully within the tenant’s leased space. Structural features, like recessed entryways or columns within the tenant’s leased space, would also be included.

Shared areas are spaces that a tenant has access to but not exclusive use of. These would include a building foyer or lobby, public restrooms in the building, common hallways, stairwells, general storage, and similar spaces. Shared areas are the same as common areas.

When calculating RSF, both private areas and shared areas are included. Private areas are included at their total square footage, and shared areas are included pro-rata according to how much a tenant uses them.

What is Usable Square Footage?

Usable square footage (USF) is limited to only the private areas that a tenant has exclusive use of. It doesn’t include any of the shared areas but does include all private areas noted above.

USF is critical for tenants to know, as it determines the functional area available for office setups, workstations, private offices, storage, and other business needs.

Critical Differences Between RSF and USF

The difference between rentable square footage and usable square footage is how shared areas are treated. Shared areas are included in RSF, but they aren’t included in USF. For this reason, USF will almost always be less than RSF.

The difference between the two is the load factor, which is sometimes called the common area factor. This is expressed as a percentage, reflecting what portion of a tenant’s rent is based on shared areas.

Load factors are often between 10% and 25%, but they can vary significantly depending on the building and tenant.

A small insurance office might have little use for common areas and could have a load factor of just 3%. In contrast, a major law firm might want a large foyer and spacious restrooms to impress clients. A load factor in a much more upscale office building could be closer to 15%.

Strip malls and malls are likely to have load factors higher than most office buildings, and indoor shopping malls have some of the highest load factors. Walkways, back hallways, public restrooms, food courts, and fountains are some of the features that increased the proportion of shared areas in these buildings. A 25% load factor isn’t unheard of in a shopping mall. Of course, tenants must understand the practical differences between RSF and USF to plan their setup and operations. They can usually only use private areas for their business.

Rentable Square Footage Calculation

For rentable square footage, both private areas and shared areas must be included. Private areas are included at 100% of their square footage, and shared areas are in proportion. The proportion is the total rentable square footage a tenant leases.

How rentable SF is calculated depends on whether the load factor is known. Assuming the load factor isn’t known, then this formula should be used:

Rentable SF = Private Areas SF + Shared Areas SF x Tenant’s Proportion

To calculate tenant’s proportion:

Tenant’s Proportion = Private Area SF / Building’s Total Rentable SF

If the load factor is already known, then it can be used to calculate rentable SF:

Rentable SF = Useable SF + Usable SF x Load Factor

The load factor can be found using:

Load Factor = (Rentable SF – Usable SF) / Usable SF

For example, assume a tenant rents 30,000 square feet out of 100,000 square feet that are rentable in the building. The building has 10,000 square feet of various shared areas. In this example, the rentable square feet would be 39,000 SF (30,000 SF + 100,000 SF x 0.30). The proportion to be used for shared areas is 30% (30,000 SF / 100,000 SF).

Usable Square Footage Calculation

Calculating USF requires measuring all the space a tenant has exclusive use of. A professional familiar with the Building Owners and Managers Association (BOMA) standards can do this. These standards detail what should be included and what shouldn’t be included.

For example, assume a tenant rents a 2,000-square-foot open space. They also have a 100-square-foot storage area and a 50-square-foot office. Their USF would be 2,150 square feet. This doesn’t change regardless of how large or small the building itself is.

Why It Matters to Understand the Difference Between RSF and USF

Both commercial landlords and commercial tenants should understand RSF and USF if they’re leasing space in a retail or office property. There are several important reasons why:

• RSF must be known so that rent can be accurately calculated since most rents are charred at a rate per square foot.

• Tenants must know USF when determining whether there is enough room for their furniture, equipment, supplies, and business.

• RSF and USF must be known to calculate load factor, which tenants might use when evaluating lease options.

• Depending on RSF and USF, landlords or tenants might use these figures when negotiating leases.

Wrapping Up

If you’re involved in commercial retail or office properties, make sure you’re familiar with rentable square footage and usable square footage. You’ll need both to understand leases and calculate rents.