Recommended Method for Measuring Leasable Areas
This recommendation defines the terms and concepts required for the measurement of leasable areas; sorts the various areas into different leasable categories; explains the principles of area definition; and, based on the above, proposes a method for the analysis and calculation of leasable areas. It also introduces the concept of lease value ratio. The calculation method is recommended for use in the case of multitenantwarehouse buildings, although it can also be applied to single-tenant properties.
Terminology
It is important to choose, introduce and accurately define the relevant technical terms to avoid misunderstandings, and to ensure that each of them is also easily understandable and clear to tenants. Furthermore, the fewer technical terms there are the better, and they should follow each other in a logical order, and be easy to remember even by the layman. It is essential to use uniformly accepted technical terms understood by everybody and defined objectively.
Ancillary area
All areas used by the tenant and required for efficient warehouse work.
Note: These areas may be exclusive and/or common areas, such as meeting room, tea kitchen, sanitary block, server room, document storage room, general storage room, copy room, broom closet, cloakroom, smoking room etc.
Building common area
The total of all areas in the building capable of use directly or indirectly by all tenants. Note: in a leasable area analysis it is to be calculated according to the principle of maximising the exclusive area on any all-inclusive floor (see the ‘Leasable Area Analysis’ section for a detailed explanation). In a ‘one tenant, one building’ scenario this area will also be considered exclusively used.
Explanation: areas indirectly used by tenants include for example the common cleaning supply storage room, garbage room etc.
General comment: the following four technical terms should only be used if the area of the relevant floor or floor unit usable exclusively by a single tenant is leased by more than one tenant and thus the concept of floor common area also needs to be used.
Circulation area
Area used by the tenant for circulation (or perhaps for waiting) due to the architectural layout of the premises.
Note: these areas may be exclusive and/or common areas such as corridor, vestibule, lobby, entrance hall etc.
Exclusive area
All areas separable by or for and exclusively used by the tenant.
Note: in a leasable area analysis it is to be calculated according to the principle of maximising the exclusive area on any all-inclusive floor (see the ‘Leasable Area Analysis’ section for a detailed explanation) for the entire building. In a ‘one tenant, one building’ scenario the entire area will be considered exclusive area.
Floor common area
All areas of the floor that are necessarily capable of use only by the tenants of the relevant floor directly or indirectly.
Floor exclusive area
All areas with separate access by a particular tenant of the relevant floor, who can close or use it separately.
Note: the floor area exclusively used by a tenant is marked with the tenant's name (e.g. floor exclusive area of tenant X).
Floor leasable area portion
The floor area exclusively used by one tenant of the relevant floor and the pro-rata portion of the floor common area.
Calculation: floor exclusive area of tenant + pro-rata portion of the floor common area.
Gross floor area
The largest covered horizontal surface area of any all-inclusive floor, enclosed by the finished external wall surfaces; i.e. the total area encircled by the external perimeter of the building (excluding internal courtyards and air shafts).
Note: in leasing practice it can be used in one tenant, one building scenarios, subject to the mutual agreement of landlord and tenant.
Leasable area
The exclusive area of a tenant and the pro-rata portion of building and floor common areas, i.e. the area for which the tenant pays rent under the terms of the lease.
Calculation: * if the relevant floor usable exclusively by a single tenant is in fact leased by a single tenant, then it is the exclusive area + the pro-rata portion of the building common area; * if the relevant floor usable exclusively by a single tenant is leased by more than one tenant and no floor common area is needed, then it is the tenant’s exclusive area + the pro-rata portion of the building common area; * if the relevant floor usable exclusively by a single tenant is leased by more than one tenant and afloor common area is needed, then it is the tenant’s floor leasable area portion + the pro-rata portion of the building common area.
Multi-tenant floor area
Area capable of use solely by the tenants of the relevant floor or floor unit, which does not include the building common area of the relevant all-inclusive floor capable of use by all tenants.
Note: hereafter the term floor shall mean either floor or floor unit.
Net area
The largest horizontal surface area of any room above floor (and skirting board) level, enclosed by the internal surfaces of the finished load bearing or fixed walls of the room, irrespective of ceiling height.
Note: in the absence of an on-site measurement, this is the area enclosed by the unfinished wall surfaces as shown in the architect's floor plan; hereafter area of rooms shall always mean net area.
Other area
Any other areas used by the tenant.
Note: * these areas may be exclusive and/or common areas such as terrace, balcony etc.; * the area of open or partially open spaces (terrace, balcony etc.) shall be their hard surfaced area (net area is not applicable here).
Working area
Tenant's exclusive area, equipped with warehouse furniture.
Note: if the warehouse has an open-plan layout, the circulation areas between tables also form part of the working area.
Building common area multiplier
The quotient of the total leasable area and the exclusive area of the entire building. Calculation: the total leasable area of the entire building / the total of the exclusive areas of the entire building, or 1 + building common area ratio / 100.
General comment: The following two technical terms should only be used if the area of the relevant floor or floor unit usable exclusively by a single tenant is leased by more than one tenant and thus the concept of floor common area also needs to be used.
Building common area ratio
The ratio of common and exclusive areas of the entire building, expressed as a percentage. Calculation: (building common area / total of the exclusive areas of the entire building) × 100.
Note: the smallest building common area ratio, which is preferable from the point of view of leasing, can be calculated from the largest exclusive area of the entire building, which equals the sum of all leased premises obtained by applying the principle of maximising the exclusive area on any all-inclusive floor (see the ‘Leasable Area Analysis’ section for a detailed explanation).
Floor common area multiplier
The quotient of the area suitable for exclusive use by a single tenant on the relevant floor and the floor exclusive area of the relevant floor.
Calculation: area of the relevant floor suitable for exclusive use by a single tenant / floor exclusive area, or 1 + floor common area ratio / 100.
Floor common area ratio
The ratio of the floor common area and the floor exclusive area of the relevant floor, expressed as a percentage.
Calculation: (floor common area / floor exclusive area) × 100.
Lease value ratio
The value reflecting the function, location and utility of a room (space) expressed as a percentage, determined by the landlord.
Explanation: while the lease value ratio of a regular warehouse area is of course 100%, in the case of a general storage room it could be, for example 50%. The lease value ratio is the ‘common denominator’ allowing rents to be calculated for all leasable areas using the same base rent per m2 and managing them consistently in the leasable area analysis and calculation.
Building common area multiplier
The quotient of the total leasable area and the exclusive area of the entire building. Calculation: the total leasable area of the entire building / the total of the exclusive areas of the entire building, or 1 + building common area ratio / 100.
General comment: The following two technical terms should only be used if the area of the relevant floor or floor unit usable exclusively by a single tenant is leased by more than one tenant and thus the concept of floor common area also needs to be used.
Building common area ratio
The ratio of common and exclusive areas of the entire building, expressed as a percentage. Calculation: (building common area / total of the exclusive areas of the entire building) × 100.
Note: the smallest building common area ratio, which is preferable from the point of view of leasing, can be calculated from the largest exclusive area of the entire building, which equals the sum of all leased premises obtained by applying the principle of maximising the exclusive area on any all-inclusive floor (see the ‘Leasable Area Analysis’ section for a detailed explanation).
Floor common area multiplier
The quotient of the area suitable for exclusive use by a single tenant on the relevant floor and the floor exclusive area of the relevant floor.
Calculation: area of the relevant floor suitable for exclusive use by a single tenant / floor exclusive area, or 1 + floor common area ratio / 100.
Floor common area ratio
The ratio of the floor common area and the floor exclusive area of the relevant floor, expressed as a percentage.
Calculation: (floor common area / floor exclusive area) × 100.
Lease value ratio
The value reflecting the function, location and utility of a room (space) expressed as a percentage, determined by the landlord.
Explanation: while the lease value ratio of a regular warehouse area is of course 100%, in the case of a general storage room it could be, for example 50%. The lease value ratio is the ‘common denominator’ allowing rents to be calculated for all leasable areas using the same base rent per m2 and managing them consistently in the leasable area analysis and calculation.
Area Categories
The areas of a warehouse building are different mainly in terms of functionality. Areas can be leasable or non-leasable. Leasable areas can be identified by their function, and they can be exclusive or common. The categories below are divided into leasable and non-leasable areas, showing the functions typically present in a warehouse building.
Note: further categories can be added if required (e.g. if the building incorporates a retail unit with street access etc).
Exclusive areas
Exclusively used and/or common areas
Parking areas
The parking is also a leasable area, but rent is determined per parking space rather than per m2.
Note: the square metre equivalent of a parking space can be calculated from the base rent per m2: for example, assuming a base rent of EUR 12 per m2, the m2 equivalent of a parking space in an underground garage renting at EUR 80 per month will be 6.66. In the case of average base rents the equivalent parking area is 6-8 m2.
Areas beneath doors and windows
Areas under the structure
note: if the area measured beneath the column (at floor level) is greater than 0.5 m2 * area beneath internal non-load-bearing walls fixed because of functional considerations (hereafter: fixed walls)
note: e.g. area beneath the walls of sanitary blocks and walls of mechanical shafts etc. * undeveloped area under the stairs leading up from the lowest floor, with a ceiling height below 1.9 m
Attached building components
Note: * the technical areas required for the operation of the building are usually not considered leasable areas; * fire stairs and escape routes are not considered leasable areas.
Electrical / IT areas
Note: IT (Information Technology) means low-voltage telephone and computer cabling (data cabling). * electrical/IT rooms: * electrical switch room – central switchboard * central generator room – central UPS room etc. * area occupied by electricity/IT ducts/shafts: * closed or open shafts – electrical cabinet etc. * circulation areas exclusive to electrical/IT rooms: * vestibule/entryway/entrance hall – corridor/circulation area * stairway – lift lobby * internal staircase – external walkway etc.
Mechanical areas
GIF – Tricks in Calculating Leasable Warehouse Area
Before embarking on this little essay, I must point out that I am working from my experience gathered during almost 10 years of negotiations with tenants, directly or through agents; negotiations that were often arduous and which, if we were lucky, led to the signing of a lease contract. I hope therefore that these subjective comments, critique and recommendations may serve as a starting point for discussion, potentially within this very forum.
As it is well known, the two key components of warehouse lease contracts are the rent and the size of the leasable area. The product of these two figures is generally equal to the developer’s net income.
Given that multiplication is a basic mathematical operation and that it is the product that interests the developer, he will attempt to increase leasable area, while keeping the rent at a level that still attracts tenants.
Knowing the total cost of a project, developers seek to earn a target yield, which is also dependent on the aforementioned product of multiplication. Disregarding for the sake of simplicity the additional important components of any carefully worded lease contract, success in finding tenants lies in a relatively low rent applied to the largest possible leasable area.
Tenants tend to focus on rental rates per square metre, which are easily compared to others on the market, and often pay little attention to the size and calculation method of leasable area. Unfortunately, there is no generally accepted and uniformly used recommendation or guideline (let alone a standard) for measuring leasable areas in warehouse buildings in Hungary. There is chaos in this field today!
A typical example is the widely different interpretation of the commonly used term gross area. Whenever this term is used at a meeting, I always ask what the other party means by it. The most frequent answers are:
So which is the correct answer? Unfortunately, in the absence of a generally accepted and uniformly interpreted terminology, there is no unambiguous choice of answer. It is also unfortunate that a consensus is lacking not only amongst clients, but also within the real estate profession.
In the following, I include a brief summary of the recommendations of the German GIF (Gesellschaft für Immobilienwirtschaftliche Forschung) concerning terminology and area calculation, with special attention to the categorisation of the various rooms within a warehouse building as leasable or non-leasable. It should be noted here that the GIF was the outcome of a joint effort between the DIN 277 German National Standard and the Deutscher Verband Chartered Surveyors. The table on the next page is a simplified summary of the relevant stipulations of the GIF.
As you can see in the table, the GIF calculates the ‘usable area’ by including the ancillary areas (e.g. sanitary block, tea kitchen, etc.). Experience suggests that knowledgeable tenants are only interested in the working area they can furnish (often referred to as net-net area in our internal slang), and not in the ancillary areas.
The GIF categorisation of areas
GIF = Gesellschaft für Immobilienwirtschaftliche Forschung
This is natural, as the size of this area will determine the possible number of workplaces (the ratio between open-plan and cellular warehouses, and the size of ancillary and circulation areas are also key to determining leasable area). Working areas usually cannot be quantified in building brochures. Depending on the features and layout of the building, the ratio of working area to the total leasable area of the building can be surprisingly low, especially in building with a cellular layout.
The GIF recommendation includes in the leasable area all the areas under movable partitioning walls, the ancillary areas, the lobby and the circulation areas, and also the lift lobbies. However, it classifies as non-leasable the areas under load-bearing structures or other non-movable walls, and also the mechanical rooms, mechanical vertical shafts, lift shafts and staircases.
The area of individual rooms is always calculated between the internal surfaces of the fixed walls (net area), even if there are cable ducts or mechanical fittings (cooler/heater) or perhaps a wall with machinery fixed to it.
I leave it up to the reader to decide whether the above main principles of calculating leasable area and the terminology of the GIF are adequate generally and specifically for the local environment in Hungary.
There is a famous case, well known in professional circles, which proves the importance of the above problems, where a tenant withdrew from a signed lease contract due to a mutual misunderstanding over the leasable area measurement.
Given the current market conditions for commercial warehouse space, there is an increased need for a leasable area calculation that is correct and also transparent to tenants.
The above confirms the need for a unified terminology and area measurement method that is adapted to the local market and accepted by the key players in this market. In preparation for that ultimate goal, our forthcoming issues will include further descriptions and finally a summary of national recommendations.
BOMA – More Tricks in Calculating Leasable Warehouse Area
Before delving into a discussion of the mysteries of BOMA, I wish to share with you, dear reader, an interesting and surprising experience that I had in connection with my article on the subject of measuring warehouse space in the previous issue.
I was representing the landlord of a Buda warehouse building at a series of public procurement negotiations over the past few weeks. At one of the first sessions, the leader of the tenant’s representatives asked whether the area we were offering for lease was to be understood as net-net? I was so startled that I answered with a question: Where did you learn this unusual term? He cited a recently published article, which stated that all potential tenants should look to the net-net area as an especially important piece of information. When he added when and where this article was published, I was able to reveal myself as the author, and after the initial surprise the atmosphere of the meeting became much more pleasant.
And now let us see what that American acronym, BOMA stands for. The legal predecessor of the Building Owners and Managers Association International (BOMA International or BOMA) was formed in 1907 with a mission to represent the interests of owners and managers of commercial properties. BOMA consists mainly of US and Canadian local associations. Besides its increasing dominance, this international association's primary task is to collect, analyse and arrange information on commercial properties, and to formulate recommendations and standards on this basis. On a not so marginal note: the key local associations of BOMA already possessed and/or managed more than 550 million m2 of commercial warehouse space – by 1996.
The first tall buildings, which already carried, in embryonic form, the design principles of the later skyscrapers of America, were warehouse buildings built at the end of the 1800’s. The fast economic growth of the time eliminated the obstacles to the construction and use of tall buildings. The most important achievements were the development of the technology of a safe and reliable lift, the ability to provide buildings with a dependable energy supply and, last but not least, improvements in the production of structural steel. Real skyscrapers have been built since the late 1920’s. The 102-storey and 381-metre high Empire State Building in New York dating from 1931, the 100-storey and 344-metre high John Hancock Center in Chicago from 1970, the 412-metre high and 110-storey, tragically destroyed World Trade Center from 1972 and the 109-storey and 443-metre high Sears Tower in Chicago from 1974, proud bearer of the title of ‘tallest’ for many years, are perhaps the most famous. These prominent skyscrapers are (or were) predominantly warehouse buildings.
As early as in 1915, soon after the first ‘real’ warehouse buildings were completed, the need arose for developing a uniform warehouse area calculation method. BOMA then headed the effort of developing the first Standard Method of Floor Measurement for Warehouses, which was elevated, with the approval of the American National Standards Institute, to the industry standard in 1955, after numerous changes reflecting the evolution of warehouse buildings and the emergence of new needs and opportunities. Today it bears the title Standard Method for Measuring Floor Area in Warehouses and mainly helps property developers/owners, managers, architects, interior designers, engineers, appraisers and agents to coordinate their work.
Notably, in accordance with the American usage of the term, this standard is essentially a ‘strong recommendation’ for the unified definition of the areas of old and new warehouse buildings.
The main aim of the standard is to give a clear and unambiguous terminology for warehouse building areas that could otherwise be understood and categorised differently, defining, among other concepts, usable area, leasable area and building common area. The standard also includes diagrams, to demonstrate and explain the text.
Below, I am describing some of the interesting points of the aforementioned BOMA standard, limiting the discussion to those that are unusual, if not unknown, in this country. The first feature to mention is the ‘magnanimous’ interpretation of the different calculations of area using dissimilar data and methods. In general, no one would be surprised if the area figures shown in construction drawings are not exactly equal to those measured on-site. Often, the landlord's calculations based on on-site measurement produce results that are different from the calculations carried out by the tenant on the same basis. BOMA allows for a maximum deviation of ±2%. Any deviations beyond that must be submitted to the judgement of an independent expert, whose own measurement results will determine the dispute.
Another interesting, and to us unusual, BOMA concept is dominant portion. In Hungarian practice the distance used to calculate the net areas of rooms bordered by outer building walls is usually measured to the interior surfaces of the walls or the walls below the windows (measured above skirting board level), even if these walls are much lower than usual. BOMA however offers the definition of dominant portion, whereby the distance to the inner side of the external perimeter wall can be measured either to the wall below the window or up to the window pane, giving a longer distance. BOMA requires measuring the distance up to the dividing unit (wall or window pane) whose surface dominates, i.e. exceeds 50% of, the vertical floor-to-ceiling height!
Similarly to the GIF (Gesellschaft für Immobilienwirtschaftliche Forschung) recommendation described in our previous issue, gross area for BOMA means the total area encircled by the outer surface of the permanent walls of the building, excluding any external walkways, balconies, terraces etc. that are beyond the outer wall surface. The recommendation points out that it is not customary to calculate the gross area as leasable area, unless a single tenant leases an entire building. This gross area is often referred to as built or constructed area. In most cases, this is used as the basis for calculating the construction cost of a building. The background logic of the BOMA definition of leasable area is interesting. According to BOMA, leasable area is calculated by deducting the so-called major vertical penetrations from the gross area of a building. By definition, these are penetrations that are essentially unchangeable throughout the life of the building, and include the area of staircases, lift shafts, vertical mechanical ducts and walls covering these etc., but not load-bearing columns, vertical shafts and cable ducts accessible from the floors.
By the BOMA definition, the warehouse area is generally equivalent to the actually usable and furnishable, exclusively used net working area (net-net area!). If the exclusively used area includes ancillary rooms (e.g. sanitary block) as well, then these areas are also included in the figure. The term storage area also means a net area of exclusive use. The building common area and the floor common area are two different concepts. Their sum is equal to the total commonly used net area.
Usable area means for BOMA the sum total of the net warehouse and storage areas plus the net building common area proportionate to the given floor. The table on the next page is a simplified, schematic representation of the components of leasable area on a warehouse building floor, as described by BOMA
The BOMA categorisation of floor areas
BOMA = Building Owners and Managers Association International
As seen above, the terminology and warehouse building leasable area definitions of the standard recommendations developed and published by BOMA International, essentially on the basis of North American experience, are rather unusual for us. However, this does not mean that nearly 100 years of BOMA’s experience should not deserve special attention in the effort to develop a unified area calculation method here in Hungary.
RICS – Yet More Tricks in Calculating Leasable Warehouse Area
After the summaries of the German (GIF) and the American (BOMA) area categorisation recommendations discussed in our previous issues, let us now look at the relevant recommendations of that respectable and long established professional organisation, the British Royal Institution of Chartered Surveyors (RICS).
A few words about the RICS itself should serve as introduction. The Royal Institution of Chartered Surveyors was established as a professional organisation in 1868. It has over 80,000 members worldwide and it is currently one of the largest professional bodies in the real estate business. British citizenship is not a precondition for membership, and foreign members now number over 10,000. Admission to the RICS requires passing both written and verbal examinations, as well as practical experience in the profession. Its members are property experts with global knowledge and familiarity with the whole lifecycle of properties, able to contribute professional advice to furthering the efficient operation of the property markets of their respective countries.
In addition to offering training courses and continuing education, the RICS regulates and monitors the professional and ethical aspects of its members’ work. It also develops recommendations covering various areas of the real estate profession. One example of this is the RICS Code of Measuring Practice. The main purpose of these area calculation recommendations is to provide clear and consistent methods for calculating the area and/or volume of land, plots and buildings with diverse functions.
In the following, we will limit this discussion to the recommendations of the Code of Measuring Practice (5th edition) focusing on those parts that expressly concern for warehouse buildings.
These recommendations are not mandatory, although in practice most real estate experts, property managers, brokers and architects follow the rules defined in the Code. Area calculation following the RICS recommendations may serve as the basis for the sale and lease of properties, as well as valuations and the resolution of complex taxation issues. It should be noted here that since 1993 it has been a crime in the United Kingdom to sell or lease property citing false area information. The RICS specifically states that information can be considered misleading and therefore constitutes a criminal offence even if it is clear to property professionals but is overly technical and too complicated to be understood by the average buyer or seller.
The recommendations also discuss the issue of measurement accuracy. They are not specific, stating only that professionals should aim for the greatest possible accuracy within the limitations of their measurement devices and expertise. The measurement method and the expected accuracy will of course differ when measuring several hectares of land or a single warehouse space. The recommendations lay down general guidelines but do not specify any variances to be observed.
Although it is self-evident for us, the RICS recommendations draw special attention to the need to use the metric system, replacing the decimal point with a comma and separating thousands with a space rather than a comma. The latter is especially worth mentioning here, because although the Hungarian spelling rules are unambiguous on this matter, a lot of documents nowadays deviate from these rules and apply a British or American spelling, or even a mixture of the two.
Expressly to make area measurement and calculation methods transparent to the layman, the RICS recommendations describe and explain in detail only three basic, interrelated terms.
These are: * Gross External Area (GEA) * Gross Internal Area (GIA) * Net Internal Area (NIA).
The following is a description of the main features of the above key concepts as they relate to the warehouse market.
Gross external area stands for the area enclosed by the outer perimeter of the external walls of each floor of the building. It excludes open balconies, canopies and roof terraces. The recommendations suggest using the gross external area figure for urban design, property tax calculation and the valuation of existing, mainly residential properties for building insurance purposes.
Gross internal area means the area enclosed by the internal perimeter of the external walls of the building of each floor. It excludes the areas beneath the external perimeter structure (walls, columns) and, by definition, any open balconies, canopies and roof terraces etc. In contrast with the practice of many other countries, the RICS recommendations consider this area figure to be the best suited for estimating the costs of planned projects, for valuing and selling existing buildings currently used for non-warehouse purposes and for calculating the operating costs of such buildings.
Net internal area stands for the area within the building that is equal to the sum of the areas of rooms of different functions enclosed by load-bearing and/or fixed (not removable) walls. This area, which the RICS also calls usable area, excludes common entrance halls, staircases, corridors, mechanical rooms, meter cabinets, lifts and any building areas with a ceiling height below 1.5 m high and areas between walls/structures narrower than 0.25 m. Unusually, the recommendations exclude from the usable area all sanitary blocks and broom closets, regardless of where they are within the building. In addition to the areas beneath load-bearing walls, the areas beneath the internal load-bearing columns of the building are also excluded. The RICS recommendations use the concept of building common area, but consistently exclude these from the usable area.
The usable area is the recommended basis of calculation for the purposes of selling, leasing, valuing and operating a warehouse.
The areas defined by the RICS and their categorisation are shown, in a simplified form, in the table on the next page.
As seen in the table, the RICS recommendations are essentially just a guideline for defining and calculating the various area types. However, they do not specify the components of leasable area and do not describe the method of leasable area calculation.
The RICS categorisation of areas
RICS = Royal Institution of Chartered Surveyors
Due to the general nature of the recommendations, British property experts may calculate leasable areas based on their experience and the conventions of the local market, concentrating at all times on the accuracy of the results of the calculation method chosen and on ensuring that the results are clear and transparent even for the layman.
Harkácsi István
+36 30 644 7655
