When 1 = 1.25: How Your Office Building Continues to Grow

A 10,000 sf office space is not actually 10,000 sf.  In a high-rise building in downtown San Francisco, the “usable” square footage in a space having 10,000 rentable square feet is likely closer to 8,000 sf.  But the tenant pays rent on the basis of 10,000 rentable square feet.  Why is the tenant charged rent on 25% more space than it can actually use?
 
The answer lies in the measurement methodology used to measure large scale office buildings in major US markets.  This methodology was developed in 1915 by an organization, founded in 1907, called BOMA.  BOMA stands for Building Owners and Managers Association.  BOMA’s standard of measurement gets a periodic refresh.  I have never seen one of these refreshes result in a reduction in building size…it’s always the opposite.  This is why, upon renewing a lease, tenants sometimes find the landlord has remeasured the space and it is now larger than it was the day immediately preceding the measurement; and, the difference isn’t due to having made a mistake with the original measurement.  It simply grew.
 
Usable square feet are square feet you can actually use.  Rentable square feet is a made up concept.  The difference between rentable and usable square feet, often referred to as the “load factor” includes things like a percentage share of “off-floor mechanical systems” and a share of the building’s lobby and the common areas on a multi-tenant floor.  In other words, it’s a way for the building owner to charge rent on portions of the building that are not otherwise directly leasable to the tenant(s).  The argument, of course, being that all tenants benefit from these areas (lobby, mechanical rooms, etc.).   
 
Adding to the confusion around how buildings are measured is the fact that, notwithstanding the standards, owners often take “liberties” with how the measurement is conducted.  You will know this is the case when the owner describes its building as being measured “…in accordance with a modified BOMA standard”.  Hmmm.  Modified how?  By the way, let’s not forget, we’re already starting from the perspective of building “owners and managers”.  This is not the “building occupiers” measurement methodology.  There’s an old real estate joke about the floors in New York City buildings being measured to the center of the street. 
 
One thing that keeps building measurement in check is market competition.  When a building is poorly designed and/or an owner takes too much liberty with the measurement, the inefficiency is revealed in the form of higher cost/usable square foot – a comparison tenants should always make when studying multiple buildings.