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Understanding building areas is not as simple as it seems

Understanding building areas is a fundamental component of real estate and development. But it can actually get surprisingly complicated. Definitions, naming conventions, and measurement techniques vary greatly around the world. 

To some, “GLA” means gross leasable area. But to others, it means gross livable area. So it’s important to understand what exactly is being measured when someone tells you that that a building is X number of square feet. Are we talking gross building area, gross floor area, or rentable area? Does that number include the below-grade areas or just what is above-grade? To make matters even more complicated, there are nuances to consider depending on whether it’s a residential or commercial building. 

By now, I am sure you’re starting to see how complicated something as seemingly simple as building areas can get. So let’s talk about some of the basics today. Again, definitions might vary depending on where in the world you area. They might even vary based on conventions you’ve adopted within your particular firm.

Gross Building Area: Also referred to as Gross Construction Area by some, this is the total area of the building, measured to the outside walls without any deductions. As you’ll see later, some area definitions allow for certain deductions. Gross Building Area is important because it’s a big driver of your costs – specifically construction costs. This is how much building you’re building. But, and this is important, it does not drive your revenue. That comes later.

Gross Floor Area: This is usually a specific locally-defined measurement convention. It often allows you to deduct certain areas from your gross building area, such as “major vertical penetrations” and below grade parking areas. This number doesn’t directly drive construction costs or revenue (saleable/rentable area), but it’s important because it’s what the city will use to determine important planning numbers such as the building’s density/floor space index and to calculate any applicable levies. It’s also a fairly public number and might be what the brokers are using to calculate, as one example, what certain land sold for on a per buildable square foot basis.

Net Saleable/Rentable Area: This is a hugely important number because it directly drives revenue. It’s your top line. It’s the amount of space you can collect rent on or the amount of space that you can sell. And unless your revenue exceeds your costs (which you’ve calculated using the numbers above), you’re not going to be able to build. 

Note: Commercial spaces (at least in this part of the world) often work a bit differently in that there is what is known as a gross-up factor. What that means is that tenants pay rent on portions of the common areas (such as corridors) that fall outside of what is known as their “usable area.” In this scenario, the rentable to usable area ratio (R/U) becomes important. Naturally tenants don’t like paying for a lot of space beyond their usable area.

This is just a brief overview of building areas. A good architect will make sure that your building area calculations are meeting all local rules and conventions. But as a developer it’s important to know and understand what exactly is being measured and what the “loss factor” of your building is. In other words, how much space is being lost to areas that cannot be sold or rented? Typically, you want to minimize lost space, unless maybe you’re pushing some new concept.

Anything to add to this building area summary? Do you use different terminology or conventions in your part of the world? Let us know in the comment section below. That would make for a fascinating discussion.

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