Actual vs. Rentable Surgery Center Space: Q&A With Richard T. Hardaway of Hardaway Associates

Richard (Dick) Hardaway is founder of Hardaway Associates, an architecture firm serving principally ASCs and other healthcare clients.

 

Q: We are looking at renting space for a new surgery center and are considering several properties. We have been told they are all around the same square footage but seem very different in terms of the actual usable space. Why is this the case?

 

Dick Hardaway: When our firm refers to floor area for architectural purposes, we always talk in terms of actual floor area, sometimes called "net" or "usable". This is the actual area of the space measured to the insides of all surrounding walls. When we quote construction cost per square foot, it is always per square foot of actual area. When we say we need 8,500 square feet, we mean actual floor area.

 

When brokers and landlords talk about floor area, they almost always mean rentable floor area. This will be measured to the outside of exterior walls and to the centerline of demising walls between tenants, and will include a "common area factor". This factor is the percentage of the building's floor area occupied by common elements, such as stairs, corridors, elevators and sometimes mechanical and electrical space. The normal practice is to take this common area and distribute it proportionally among the tenants to arrive at rentable floor area. For example, if our space takes up 40 percent of the building's usable floor area, then 40 percent of the building's common area would be added to our actual floor area to get the rentable area. Depending on the type of building, this common area factor could vary from nothing, in the case of a strip mall, to over 20 percent of actual in some office buildings. You will also probably have to deduct the area occupied by the exterior walls, which averages around 3 percent of the rentable area.

 

If you are inquiring about prevailing rental rates in a particular market, you should find out what a representative common area factor should be to go along with those rental rates. You should also ask whether that factor is a "loss factor" or an "add-on factor", because it can be quoted in either way. If the factor is a loss factor of 18 percent, you subtract 18 percent from the rentable to get the actual. If it's an add-on, you add 18 percent to the actual area to get the rentable area. It is done in both ways. You should add another 3 percent to account for the area of the walls around the space.

 

Here are the formulas:

 

If the common area factor is a "loss factor":

 

Rentable = Actual x 1.03 / (1 - loss factor)

 

If the common area factor is an "add-on factor":

 

Rentable = Actual x (1 + Add-on factor) x 1.03

 

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