When it comes to commercial real estate, understanding the intricate metrics and measurements involved is vital. One such crucial concept is the Gross Leasable Area (GLA), which is frequently used and integral to real estate. Understanding what GLA is, its significance, and how it’s calculated can make a substantial difference in your commercial property dealings.
GLA is a primary factor in determining rental rates, comparing properties, and projecting potential revenues for both landlords and tenants. It helps create a level playing field when comparing different properties and clarifies the commercial property space. So, what exactly does GLA mean, and why does it hold such importance?
Understanding Gross Leasable Area
Gross Leasable Area, often called GLA, refers to the total floor area designed for tenant occupancy and exclusive use. It includes the base area of the premises plus any mezzanines, balconies, or loft areas that the tenant can utilize. GLA excludes areas that are devoted to the common areas of the building, such as lobbies, restrooms, stairwells, elevator shafts, and mechanical rooms.
The Importance of GLA for Projecting Potential Revenues
In commercial real estate, one of the key considerations for landlords and investors is the potential revenue a property can generate. This revenue is mainly determined by the rental rates, which are typically quoted on a per-square-foot basis. Therefore, the more leasable square footage a property has, the more revenue it can generate.
For example, consider a commercial building with a GLA of 20,000 square feet. If the average rental rate in the area is $30 per square foot per year, the building could generate annual gross revenues of $600,000.
How to Calculate Gross Leasable Area – BOMA Standards
The Building Owners and Managers Association (BOMA) sets the standards for measuring GLA. According to BOMA, the GLA of a commercial property should include all tenant areas, including mezzanines, balconies, or loft areas. It should exclude common areas such as lobbies, restrooms, stairwells, elevator shafts, and mechanical rooms.
Here’s how you can calculate GLA according to BOMA standards:
- Measure the Gross Area: Start by measuring the total area of the building, including both leasable and common areas. You can do this using building blueprints or architectural drawings.
- Deduct Common Areas: Subtract the area devoted to common areas from the gross area. This will give you the GLA.
Factors Affecting Gross Leasable Area in Commercial Properties
Several factors can affect the GLA of a commercial property. They include:
- Building Design and Layout: The design and layout of a building can significantly impact its GLA. For instance, a building with a more efficient layout that minimizes common areas can have a higher GLA.
- Local Building Codes and Regulations: Local building codes and regulations may dictate how much of a building’s total area can be designated as a leasable area.
- Renovations and Alterations: Any renovations or alterations to a building can change its GLA. For instance, converting a common area into a leasable space can increase the GLA.
GLA vs. Rentable Area: What’s the Difference?
GLA and Rentable Areas often need clarification but represent different things in commercial real estate. While GLA refers to the total floor area designed for tenant occupancy and exclusive use, Rentable Area includes the GLA plus a pro-rata share of the building’s common areas.
For instance, if a tenant leases a 2,000-square-foot suite in a building with 200 square feet of common areas, their Rentable Area would be 2,000 square feet (GLA) plus their share of the common areas.
GLA for Tenants: Net Leasable Area (NLA) vs. Gross Leasable Area
From a tenant’s perspective, the Net Leasable Area (NLA) might be a more relevant metric. The NLA is the portion of the GLA that the tenant can actually use for their operations. It excludes areas within the leased premises that the tenant cannot use, such as structural elements, interior walls, and utility closets.
For example, a tenant might lease a space with a GLA of 2,000 square feet. However, after subtracting the area of interior walls and utility closets, they might only have an NLA of 1,800 square feet to use for their operations.
Mistakes to Avoid When Measuring GLA
When determining the Gross Leasable Area of a property, precision is paramount. A small miscalculation can significantly affect the valuation of a property and its projected revenues. Here are some of the most common mistakes made during the GLA calculation process and how to sidestep them:
- Relying Solely on Old Blueprints: Property layouts can change over time due to renovations or redesigns. Always confirm the accuracy of any old architectural drawings by comparing them to the current state of the property.
- Misidentifying Common Areas: Incorrectly categorizing certain spaces as either leasable or common can skew your GLA. For instance, incorrectly including a shared hallway as part of the GLA can inflate the leasable space figure.
- Ignoring Local Standards: Different regions or jurisdictions might have their own guidelines on what constitutes GLA. Make sure you’re aware of and adhering to local regulations and industry standards.
- Overlooking Vertical Spaces: Mezzanines, balconies, or loft areas can sometimes be forgotten in the GLA calculation. Ensure that all occupiable spaces, both horizontal and vertical, are included.
- Using Inaccurate Measurement Tools: Using outdated or miscalibrated tools can lead to inaccurate measurements. Regularly check and calibrate your tools, and consider adopting digital tools that offer higher precision.
Negotiating Leases with GLA in Mind
The Gross Leasable Area is more than just a metric – it’s a powerful negotiating tool in the realm of commercial real estate. Understanding its intricacies can offer a competitive edge for both landlords and tenants. Here’s how:
For Landlords:
- Setting Competitive Rates: By understanding the exact GLA, landlords can set per-square-foot rates that are both competitive in the market and profitable for them.
- Flexible Space Allocation: With a clear idea of GLA and common areas, landlords can offer flexibility to potential tenants by potentially reconfiguring spaces to suit tenants’ needs.
- Transparency: Providing clear and accurate GLA measurements can foster trust with potential tenants, making them more inclined to close the deal.
For Tenants:
- Assessing Value for Money: Knowing the GLA allows tenants to accurately compare different properties, ensuring they’re getting the best value for their money.
- Bargaining Power: If there’s a discrepancy between the advertised GLA and the actual space, tenants can use this as a bargaining chip to negotiate lower rents or other concessions.
- Optimal Space Utilization: Tenants can plan their space more efficiently by understanding both the GLA and NLA. This ensures they’re utilizing every square foot they’re paying for effectively.
Both parties should always ensure that GLA calculations and representations in lease agreements are clear, transparent, and in line with industry standards to avoid potential disputes or misunderstandings down the line.
Bottom Line
In the intricate world of commercial real estate, understanding the details and nuances of metrics like the Gross Leasable Area is more than just a necessity—it’s a competitive advantage.
Whether it’s ensuring accuracy in calculations, sidestepping common pitfalls, or leveraging GLA knowledge in lease negotiations, the benefits of mastering this metric are manifold.
For landlords and investors, GLA provides the foundation for setting optimal rental rates and maximizing revenues. For tenants, a keen understanding of GLA, Rentable Area, and Net Leasable Area ensures that they make informed decisions and utilize their leased spaces efficiently.
In an industry where every square foot counts, being well-versed in GLA concepts is pivotal to achieving success.
FAQ Section
What does Gross Leasable Area represent in commercial real estate?
GLA represents the total floor area designed for tenant occupancy and exclusive use, excluding common areas like lobbies, restrooms, stairwells, elevator shafts, and mechanical rooms.
How is Gross Leasable Area different from Rentable Area and Net Leasable Area?
GLA excludes common areas, while Rentable Area includes GLA plus a pro-rata share of the building’s common areas. NLA is the portion of the GLA that a tenant can actually use for their operations.
Why is Gross Leasable Area essential in projecting potential rents and revenues?
GLA is essential because rental rates are usually quoted per square foot. Therefore, the more leasable square footage a property has, the more revenue it can generate.
How is Gross Leasable Area calculated according to BOMA standards?
According to BOMA standards, GLA is calculated by measuring the total area of the building, then subtracting the area devoted to common areas.
What factors can affect the Gross Leasable Area of a commercial property?
Factors that can affect GLA include the building’s design and layout, local building codes and regulations, and any renovations or alterations to the building.
