4) What are CAM charges?
A Common Area Maintenance charge refers to any incurred cost for work done on areas accessible to all tenants. The specific percentage of the cost that the tenant incurs is negotiated into the lease. Generally, this should be prorated based upon the percentage of rentable square footage that the tenant has leased out.
For Example: Parking lot maintenance, snow removal, landscaping, and similar services can potentially be paid in part by the tenant as a CAM charge, depending on negotiations with the landlord.
For Top FAQ #5, click here.
5) What is the difference between useable square feet and rentable square feet?
When leasing in a commercial building, it is important to understand the difference between the usable and rentable square feet and how they factor into your monthly payment.
Usable Square Feet (USF) is the specific area the tenant will occupy in order to do business. It is the actual space used from wall to wall and does not include common areas like columns, corridors, bathrooms, elevator and stair shafts, window frames or HVAC units against the window. If a tenant is occupying an entire floor, the USF would include restrooms, hallways and other exclusive areas serving only that floor. The usable square footage is always less than the rentable, however tenants pay rent based on the rentable square footage.
Rentable Square Feet(RSF) is the usable square feet of the office space in addition to a portion of the building’s common areas. This includes anything outside of the occupied space such as lobbies, bathrooms and hallways, etc. This is also referred to as the “load factor” or “loss factor”, and typically ranges from 10% – 20%, in some cases even higher.
Load factor = Rentable square feet / Usable square feet
For example: A 200,000 square foot building has 25,000 square feet of shared space. The usable square footage is 175,000 square feet. When calculated, the load factor (200,000 / 175,000) is 1.142, meaning the building has a load factor of 14.2%.
Leasing the perfect office space can be a very difficult and daunting task. With so many variables from parking to flooring, finding the perfect space can feel nearly impossible. Start looking internally within your own business. Really understanding your business’ needs will allow you to discern between trends, lofty dreams and reality.
Bill Himmelstein of Tenant Advisory Group offers exclusive tips for those looking to lease the right space.
Stay in Reality
Most companies are expecting to experience growth in the future, but it is not wise to lease on expectation. Lease your office space based on your current needs, then expand as your company does. It is better to have a slightly cramped space than unused space eating into your pocketbooks. Every business has plans to grow. Everybody thinks they have the next big thing and while it is important to have that aspiration, putting the cart before the horse will often end poorly.
Settling does not Need to be a Negative
Your dream office space may not be available when you need it, but do not give up on the building completely. One way to combat this issue is through a right of first refusal agreement with your landlord. If you can successfully bargain for this, then you will have the first crack at the preferred office in the building that suits your growing needs when a current lessor moves out. Small companies may find it difficult to bargain for this, however it can be extremely valuable as a way to expand your space more naturally. While the office that you currently occupy may not have all the internal aesthetic qualities that you want, it is still embedded in the same environment and neighborhood culture as your dream office.
Every company wants the most modern building right next to the most successful businesses in the city. While many companies believe this to be a power move to boost creativity and generate more business, it’s actually costing your business more than just rent. It’s crucial to pay attention to two important factors when preparing to lease a space for your business: function and your finances.
Creativity isn’t born within lofted ceilings and larger than life windows. Creativity is born within the the people and culture on your company. Shift your investment strategy away from building aesthetics to the social norms and employee investment within your company to build a more lucrative business. Focusing too much on the cosmetics of your business can make customers feel like they are being overcharged to pay for your company’s lavish lifestyle.
The Value of Exposure
It’s imperative to think about the nature of your business before signing a lease. For example, street level is great for businesses with walk-up clients, such as retail. Businesses that rely heavily on referrals, such as a medical practice, should go with a more frugal space that is congruent with the type of business and its clients.
Move Against the Herd
When making such a big investment it’s better to focus on lasting effects than following a trend. Move against the herd to have the best investment on your lease. As Warren Buffett said, “Be fearful when others are greedy. Be greedy when others are fearful.”
While finding the perfect space to fit your business may seem like a daunting task, setting clear goals and defining your company’s needs drives a more precise search. By planning for future growth and preparing oneself accordingly, the need to uproot constantly will be mitigated.