Did your rentable area increase in 2017?

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Prologis’ new Denver office utilizes outdoor amenity space, which can now be included in the property’s rentable area, according to the new BOMA 2017 Office Standard. Courtesy Gensler

Garett Naff
Garett Naff
Area analysis consultant at Gensler, and BOMA International committee chair, Denver

If you own or lease an office building, there’s a chance that the rentable area may increase when measured with the new BOMA 2017 Office Standard, released in October. The recently launched office standard has made some significant changes in the types of spaces included in rentable area.

The Building Owners and Managers Association International distributes floor-area measurement standards to provide a uniform basis for measuring rentable area in existing and new buildings. While the 2017 version of the Office Standard adopts best practices learned from the 2010 version, it also seeks to accommodate design and amenity trends, which have evolved since the previous standard was released.

Jon Gambrill
Jon Gambrill
Managing director, Gensler, Denver

As people embrace more convenient lifestyles – blending work and play – the built environment must keep pace. Today’s tenants are demanding more amenities, at both an increase in size and quality. This all comes with a cost to the developer, and tenants have shown that they are willing to pay a premium for places and services that support their lifestyle.

One of the amenities that has influenced the BOMA 2017 standard is the inclusion of outdoor balconies and rooftop terraces in rentable area. These spaces are becoming an expectation of tenants, who have a renewed focus on employee productivity and wellness, and who understand that access to nature and outdoor spaces is a critical component to their workplace strategy.

In the past, there was not a consistent method for building owners to account for tenant amenities, such as rooftop terraces and balconies. BOMA is catching up to the market, and the new standard will provide greater clarity for all parties into how rentable numbers are calculated.

“BOMA is administered to deliver consistent and clear area measurements, so that the resulting measurements can inform decisions,” said BOMA practitioner Mitch Luehring with Gensler. “Attention to detail and alignment with the standard is critical because of the financial impact the numbers have.”

Other notable changes to the 2017 version of the standard include:

  • An alignment with the International Property Measurement Standard, which provides the opportunity for consistent measurement methodology for comparing and benchmarking buildings across some international markets. The IPMS measurements for office buildings do not provide rentable area calculations and is not intended for transactional purposes such as leases.
  • The inclusion of major vertical penetrations such as stairwells and elevator shafts “at their lowest level” in rentable area.
  • The removal of the clause allowing for the inclusion of public pedestrian thoroughfares on the ground floor of buildings.
  • The specification of nuances that affect measurements, including special conditions, new space classifications, tenant ancillary areas and more.
  • The addition of details on how to apply advanced concepts, such as inter-building service and amenity allocations (formerly called limited-service areas and campus-service areas), occupant storage, circulation and standardized extended circulation calculations, etc.

Navigating the ‘Factor’

You may hear “the factor” referred to as the “add-on factor” or “loss factor,” but the correct term when used with BOMA Office Standards is “load factor.” The load factor is the ratio applied to a building that accounts for all of the service and amenity areas in a building to calculate the rentable area. As demand for amenity spaces continues to trend upward, load factors are on the rise. Recognizing this, BOMA 2017 Office Standard gives the option to define capped load factors and other special calculations, which provides flexibility to keep all areas accounted for while defining a more market-tolerant load factor.

At Gensler, we see the future of the office continue to be one of community – where the focus is on flexible and personalized experiences for the workforce. The desire for spaces that support this will continue to be coveted by tenants – driving the factor up. In the past, some owners have resorted to “modifying” their BOMA calculations to get the numbers within a marketable range. Because BOMA does not recognize “modified BOMA” as a true BOMA study, this approach comes with risk.

“Misunderstood and misinterpreted building measurement data can result in serious implications when negotiating the sale, purchase or lease of a building,” said Luehring. “With 2017, BOMA has curated a more tightly defined office standard that reigns in many of the arbitrary ‘modified BOMA’ interpretations out in the marketplace.”

Although the changes to the updated BOMA 2017 Office Standard may increase the rentable area of office spaces, tenants and owners will benefit from increased transparency into building transactions by improving an equitable way to proportionally divide space, allowing for a better comparison of buildings. Highlighting what today often is misinterpreted as a measure of efficiency, the load factor captures the proportion of the building that makes up these highly coveted amenities. This provides the opportunity for a different conversation between landlords and tenants – one that is focused on the value of the building amenities, and the overall percentage of the building area they make up.

Comparing 2010 and 2017 standards

To highlight the major differences between BOMA 2010 Office and BOMA 2017 Office, we measured a building with both standards using Method A. In this case, BOMA 2017 resulted in a 3 percent larger rentable area than BOMA 2010. The diagram indicates some of the impactful changes that affected the numbers.

With BOMA 2010 and even the 1996 Office Standard still considered viable measurement options, only time will tell how adoption of the new standard will play out. Understanding the nuances of each standard becomes important for determining which standard will be most advantageous for a situation. As we look toward 2018, we’re excited to see if better transparency into building amenity metrics can assist in changing the conversation from one of cost to one of value.

 

Featured in the January 2018 Property Management Quarterly.

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