When looking for your ideal office space in the Toronto Area, there are many things to consider. Office space for lease consists of various types of space, including corridors, elevator shafts, common meeting areas, stairways, and lobbies. With the value of space in the market already quite high, it’s essential that you and your team have a clear understanding of just how much space you’ll be occupying before you sign a lease.
Rentable Versus Usable Office Space
Rentable square footage typically refers to the entire building rather than just the space a tenant is working in and is the size that rental calculations are usually based on. This means that if a landlord provides you with a rentable area number, they are taking into consideration your proportionate share of the common areas that you will be sharing with other tenants. In a standard office building for sale in the Toronto area, this could include the washrooms on your floor, corridors, main lobby, etc. While these are all necessary areas in the building shared by all tenants, it’s important to understand how much space you will actually be leasing.
To obtain a clearer understanding of just how much actual business space is available, a prospective tenant should refer to usable square footage. Usable square footage refers to the office space for rent on the premises excluding common areas. This is the specific area, including but not limited to offices, cubicles, internal hallways, and reception areas. Essentially, it is the space that the tenant has exclusive access to and does not share with other tenants.
TIP: Rentable versus usable space can have a major impact on your bottom line. Office landlords in the Greater Toronto Area typically calculate rental costs based on rentable size.
Calculating Usable Area
It is important to note that there are various types of office buildings within the Toronto market, and not every building has the same amount of common area. When a tenant is in the market for space, they’ll want to familiarize themselves with a few calculations so they understand what their rent calculation will be based on.
Landlords have what is typically called a Common Area Factor that they use when calculating rentable and usable sizes of office space for lease in Toronto. This factor is calculated using the following calculation:
Common Area Factor = Rentable Square Footage ÷ Usable Square Footage
- Example: 200,000 rentable sq. ft. ÷ 180,000 usable sq. ft. = 1.11 Common Area Factor
Once the Common Area Factor is determined, it can be used to determine an individual tenant’s requirement in each specific building. An example of how that can be calculated is below:
Rentable Square Footage = usable Square Footage x Common Area Factor
- Example: If you need 10,000 sq. ft. of usable area, and one of the properties of interest has a Common Area Factor of 1.15, you can do this quick calculation to determine just how much space your rent will be based on.
10,000 usable sq. ft. x 1.15 = 11,500 rentable sq. ft.
- Example: To give you an idea of the impact on your bottom line, here’s an example of the cost difference between an 11% and a 15% Common Area Factor over the length of a ten-year lease. We’ll be using a building with 20,000 square feet of usable area. In terms of the rates, we’ll be using an average net lease rate of $25.00 per square foot, and an additional rent of $15.00 per square foot equating to $40.00 gross per square foot.
11% Common Area Factor:
20,000 usable sq. ft. x 1.11 = 22,200 rentable sq. ft.
22,200 rentable sq. ft. x $40.00 gross per sq. ft. x 10 years = $8,880,000
15% Common Area Factor:
20,000 usable sq. ft. x 1.15 = 23,000 rentable sq. ft.
23,000 rentable sq. ft. x $40.00 gross per sq. ft. x 10 years = $9,200,000
$9,200,000 – $8,880,000 = $320,000.00
Something as simple as a Common Area Factor being 11% instead of 15% can provide a cost savings of $320,000 over a 10-year lease. It’s definitely something to consider when on the hunt for your perfect office space.
In conclusion, it is important to understand just how much space you’ll be occupying, and the impact on your rental costs. A commercial realtor specializing in the Toronto office market is a great resource and wealth of knowledge when looking for your next office space. They can provide details on the different buildings in the area. They can also help navigate through what’s usable versus rentable at each property, and steer you and your team toward the correctly sized office space for sale in Toronto that matches your unique real estate needs.