Useable and Rentable are terms used to describe the type of square feet (SF) in a lease space. Useable is the space that is actually available for the tenant to use exclusively. This is space in which you can put desks, employees, files, conference rooms, merchandise, etc.
Rentable, on the other hand, is the amount of space for which you pay rent. Shouldn’t these two numbers be the same? Well in a retail space, flex buildings, warehouses, and single-tenant office buildings, they usually are the same.
But if you are in a multi-tenant office building, you share common areas like restrooms, elevator lobbies, electrical rooms and corridors with other tenants. So a portion of those shared common areas (CA) is added to each lease so each tenant pays for a portion of them. The useable SF plus the share of the common areas equals the rentable SF.
USF + CA = RSF
You may have heard the term “core factor” or “add-on factor” used. This is simply the percentage added to the useable SF to arrive at the rentable SF.
USF * (1+%Factor) = RSF
So if you lease 5,000 useable SF and the core factor is 15%, the rentable SF would be 5,750. That’s what you would actually pay rent on.
5,000 USF * (1+.15) = 5,750 RSF
Some people think that it’s better to lease space in a single-story flex building as an alternative to multi-tenant office space because they aren’t paying for the shared common area. But this isn’t necessarily true. A flex space still has restrooms, an electrical panel and maybe a closet for the HVAC equipment – they are just in the tenant’s space instead of the common area. So some portion of the space is still taken for those services.
Once all spaces of interest have been identified, it’s best to calculate the rent per USF for each space. You do that by dividing the total rent to be paid by the USF. In our example of the 5,000 USF/5,750 RSF space, let’s assume the rental rate is $20.00. That means it’s $20.00 per rentable SF. The total would then be 5,750 RSF * $20.00 = $115,000 per year. Dividing $115,000 by the 5,000 USF gives you a rate of $23.00 per useable SF.
Let’s now compare this to another building which has the same 5,750 RSF at the same $20.00 rental rate, but with a 17% factor. The USF is now only 4,915 (5,750 / 1.17). The total annual rent is still $115,000. But the rent per USF is higher at $23.40 because the USF is 85 USF smaller than the first building. So you would be paying the same amount for less space that you can actually use.
So the rental rate is an interesting fact, but it doesn’t always tell you how much you are really paying for the space you actually get to use exclusively.
For other real estate terms, see the Glossary on REATA’s website.
Bob Gibbons is a Real Estate Advisor & Tenant Advocate with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.