Why is it so critical in commercial real estate (CRE) to know the rentable square footage of a property? And what is included in rentable square feet when measuring the space of a commercial building?
Great questions! We’ve got the answers.
Whether you’re a seller, buyer, or refinancer of commercial real estate, it’s imperative to have the most accurate rentable square footage data on hand. And here’s why:
- Buyers should always validate the rentable square footage the seller is listing to avoid overpaying. With accurate data, buyers can find new ways to maximize revenue once they’ve taken over an asset.
- Sellers should study rentable areas to see if they can increase the square footage to maximize the sale price.
- Refinancers need to know the property’s exact square footage to get an accurate picture of net operating income (NOI) and the building’s value.
Keep reading for four key steps to make sure you’re doing your due diligence when buying, selling, or refinancing a commercial property.
1. Use the Latest Measurement Standards
You need to use the most up-to-date measurement standards from BOMA and REBNY. BOMA 1996 is outdated and should not be used for anything other than building-wide measurement. BOMA 2010 Method A and Method B are both old measurement methods as well. There are only a few instances in which these measurement standards are acceptable to follow.
Going forward, CRE properties should abide by the BOMA 2017 (Method A and Method B) and REBNY methods. It is important to note that REBNY is for New York, and a few select other markets only.
2. Determine How Space Needs Have Changed
Just like it has for so many other things, COVID has changed the way we do business. And tenants want a say in the spaces they are occupying. For this reason, commercial tenants are eager to modify spaces – accommodating for social distancing, remote work, etc. Your property might see a change in rentable square feet from when it was initially acquired. Make sure measurements continue to be updated, down to the last square foot.
3. Reach Out to Experts for Guidance
While it’s important to use the newest measurement standards, it can be difficult to know the ins and outs of each. Plus, standards are often updated and it can be difficult to keep up with the changes. Incorporating commercial real estate management software into your business strategy will help catch the rentable square footage data you might be missing. Space management software, along with expert guidance, provides you with the tools you need during the remeasurement process to ensure buildings are accurately measured.
4. Implement a Data Management Strategy
When reevaluating your building’s rentable square footage, the new calculations need to be stored somewhere. Updated data should be easy to access, preferably in an online cloud format. That way anyone can access it at any time. New measurements should also be presented in a way that lays out the data across your entire portfolio. This makes it easier to spot trends in your building portfolio that you might have previously overlooked – providing new opportunities to capitalize on.
Getting To the Next Step
Inaccurate measurements are rampant in commercial real estate. Especially when spaces are measured manually in-house. That’s why specialized space management and measurement firms exist.
No matter your role in the commercial real estate market, a space management solution is vital for the success of a property. Utilizing a space measurement tool can directly affect and improve your NOI.
As you move to buy, sell, or refinance your property, our experts are here to help with all your measurement needs. Contact us today to learn what you can be doing to add rentable square footage to your commercial property and read our latest checklist “Commercial Real Estate Due Diligence Checklist for Space Measurement: Buying, Selling or Refinancing a Building.”
