Rentable Area

Rentable area is the area within a building to which a landlord can charge rent. This includes the tenants’ private and/or exclusive use space, as well as the building’s common areas.

Tenants usually pay rent for their exclusive space plus a share of the common area. A tenant’s rentable area calculation is commonly calculated by multiplying their usable space by the building’s load factor.

Usable Area + Common Area = Rentable Area

Putting “Rentable Area” in Context

Horizon Equity Partners, a real estate private equity firm, recently acquired Desert Ridge Office Park, a suburban office property located in Phoenix, Arizona. The property consists of two Class A office buildings totaling 100,000 square feet of rentable area. Desert Ridge Office Park features modern amenities, including a shared lobby, conference rooms, and a fitness center, all considered part of the common areas.

Rentable Area Breakdown

One of the major tenants at Desert Ridge Office Park is a regional tech firm occupying 20,000 square feet of usable space. In addition to this exclusive space, the tenant shares responsibility for common areas such as hallways, elevators, and restrooms.

The property manager calculates the building’s load factor at 1.15. This load factor means that for every square foot of usable area, tenants are charged an additional 15% to account for their proportional share of the building’s common areas.

The calculation of the tenant’s rentable area is as follows:

• Usable Area: 20,000 SF
• Load Factor: 1.15
• Rentable Area Formula: Usable Area × Load Factor
• Rentable Area: 20,000 SF × 1.15 = 23,000 SF

Thus, the tenant pays rent based on 23,000 square feet, covering both its exclusive use space and a share of the common areas.

Importance of Rentable Area

Understanding the distinction between usable and rentable area is crucial for both landlords and tenants. From a landlord’s perspective, the rentable area is the basis for revenue generation and lease structuring. For tenants, clarity on the rentable area ensures they understand the total cost implications of leasing space, including shared amenities.

In this hypothetical scenario, Horizon Equity Partners ensures the load factor is competitive with comparable properties in the Phoenix market to attract and retain tenants, while maximizing the property’s revenue potential.