Common Area Factor in Commercial Real Estate

As I have written previously, we are currently looking for a new office space. This is the first time we will have an office outside of a tech incubator hub.

The commercial real estate process is fascinating to a first time participant like me. It is an old industry with funny quirks.

One thing that really caught my eye is that square footage quotes are not actually measurements of real square footage. Nearly all quotes have a baked in “common area factor” multiplier of 15-25%. This factor is designed to cover the percentage of the building that is common to all tenants.

Rather than quote the percentage and report the square footage separately, the factor is baked into the square footage. So 1 sq foot in one building may actually be a different real size than 1 sq foot in another building, depending on the factor.

It’s a misleading artifact of the industry and not readily transparent.

Other old industries are like this too. Elon Musk recently wrote about the auto industry’s stodgy practice of using dealerships to sell cars.

As we search for space, we are now normalizing for these factors and trying to make things more transparent in our hunt. Similar aspects exist in the buildout process of CRE and we look forward to confronting those.

What are your thoughts on non-transparent aspects of old industries?