When looking for an office space rental in NYC, prospective tenants often weight their search and make decisions on the rental cost per square feet. They may be confused by the difference in rents based on price per rentable and usable square feet. Yet, the full understanding of the difference between traditional / commercial office spaces and executive suites can help them better understand the difference between rentable and usable square feet. By understating that difference, prospective tenants may make a better decision about what office space to lease and can thereby achieve major savings.
Before offering the explanation about the most appropriate way to assess prospective office space for rent, it is necessary to distinguish between executive office suites and traditional office leases/subleases. Executive suites represent one or a combination of office space that is exclusively dedicated to a certain business and the additional facilities – 1000′s of square feet of common space – such as hallways and meeting rooms, and amenities, such as reception/call forwarding, that are shared among several tenants within the facility. In this sense, when prospective tenants look at the cost of leasing executive suites, the asking rent may be quoted based on usable or rentable square feet, and often based on the number of workstations that may be accommodated by the space. On the other hand, commercial leases and subleases have the rent quoted based on rentable space calculated by landlord, in the case of lease, or by tenant, in the case of sublease. Hence, different types of office space can have the same asking rent per square feet, and for the same footage they can cost the same amount of money. However, that does not mean that they represent an equally good deal. In fact, for tenants without experience and the understanding of what the rent quotation based on rentable square feet (RSF) or usable square feet (USF) means, this can be a major mistake that can cost thousands of dollars over the length of a lease.
When an entire building is leased, the rent is quoted based on rentable square feet, which reflects the usable square feet plus the total in square feet for all other non-office rooms in the leased building (e.g. lobbies, hallways, roofs, etc.). In the case of executive suites, the rent quoted based on rentable square feet which already includes the area of usable square feet and the proportionate share for the tenant’s use of the building’s common areas (e.g. lobbies, hallways, etc.). This common share is calculated as the ratio of the rented space to the building’s total office space. For example, a 10,000 square-foot tenant in a 100,000 square-foot building has a share of 10% in the common non-office facilities (e.g. lobbies, hallways, etc.). [Note: This share also decides how much a tenant pays in communal costs for the building.] Hence, in order to compare apples with apples, it is necessary to obtain the rent for both types of office space (traditional office building and executive suite) quoted on the same basis (e.g. rentable square feet).] However, keep in mind, landlords can come up with your share on their own discretion, thus the common share formula can vary and can be up to 20-40% in high end Class A buildings which spend large amounts of money on security and other building amenities.
However, the rent of $50 per rentable square feet for an office building of 3,000 rentable square feet and the rent of $50 per rentable square feet for the same 3,000 rentable square feet in an executive suite still could represent entirely different deals. It all depends on the relationship between the rentable and usable space, called the load or loss factor.
In order to make the most appropriate decision about achieving maximum possible efficiency of rented office space for the most appropriate cost, it is necessary to know either rentable and usable square feet for both the commercial office building and executive suite, or, alternatively, rentable square feet and the loss factor for both types of office space. In case you do not have any information about usable square feet for the two types of office space, you may ask for the loss factor. The loss factor in relation to rentable square feet will help you determine what office space gives you the most usable space for your money. This will help you make the most appropriate decision.
The loss factor is actually the ratio between what is rentable and what is usable in a rented office space. It is calculated as the difference between the rentable and usable square feet divided by rentable square feet, as described in the formula below:
Let’s assume that you need 1,500 square feet of office space and you are comparing two different buildings, an Office Building X with 1,500 rentable square feet and a loss factor of 40%, on the one hand, and an Executive Suite Y with 500 usable square feet, on the other. An Executive Suite X will be a better choice because it will provide more usable office space. Using the formula above, the Office Building X will have 900 SF usable square feet, compared to 500 usable square feet for Executive Suite Y. But, when you factor in common areas such as kitchen, meeting rooms, reception area, hallways, you are easily looking at a minimum additional 2000 sf, which you don’t have. Thus, additional consideration should be given to the cost of “outsourced” services, which come as the free-of-charge amenities, such as cost of receptionist/building maintenance, office staff, business machines, available conference rooms, presentation of facility, that are common for executive suite leases. These costs may not be included in the rent quoted based on rentable square feet for executive suites. However, they could be an important factor when differences, such as rent price per rentable square feet, between prospective office spaces are relatively small. More so, traditional spaces often require construction, furnishing, telecom setup, large security deposits, and long term commitments (5-10 years), thus studies have shown that the average time it takes between starting your search and actually moving into your space can be from 3 to 8 months. For an executive suite, there is no construction or furnishing needed, you can often commit to 3 – 12 months, with low security, and average time of search to move in from 1 day to 21 days.
Businesses interested in getting most out of their money can benefit a lot from understanding the aforementioned concepts. The understanding of how office space is measured and how rents are quoted will help tenants achieve major savings over the lifetime of their leases.