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What Is Gross Leasable Area: A Detailed Guide

If you’ve ever dabbled in the world of real estate, you’ve probably come across the term ‘gross leasable area’ (GLA). It’s a crucial metric that helps to determine the value of commercial properties. However, the concept may seem a bit complex if you’re new to this field. So, let’s unravel this term and delve deep into its significance, calculation methods, and implications.

Introduction

The field of real estate is replete with various terminologies that are essential for both investors and property owners to understand. Among these terms, Gross Leasable Area is one that plays a pivotal role in the valuation and leasing of commercial properties.

Understanding Gross Leasable Area

Gross Leasable Area is defined as the total floor area designed for tenant occupancy and exclusive use, including basements, mezzanines, and upper floors. It is measured from the center lines of joint partitions and from outside wall faces. GLA is typically used in rental properties to identify the amount of the floor space available for rent.

The total annual market rent per GLA of shopping centers in the United States was approximately 13.7 billion square feet in 2020, as reported by the International Council of Shopping Centers (ICSC).

Source- depositphotos.com

The Basics Of Gross Leasable Area

To further grasp the concept of Gross Leasable Area, we must dive into its basic definitions, its importance in real estate, and how it is calculated.

What Is Gross Leasable Area

The Gross Leasable Area in commercial, often abbreviated as GLA, is a measure of the total space available for rent in a commercial property. This includes all the areas that a tenant can use exclusively, such as shops, offices, storage spaces, etc. It excludes common areas like lobbies, restrooms, and corridors.

The Mall of Asia in the Philippines, one of the largest shopping centers in Asia, features a GLA of over 15 million square feet, among other tenants making it a prominent retail destination.

Importance Of Gross Leasable Area In Real Estate

The Gross Leasable Area is an important factor in the real estate industry as it directly impacts a property’s income potential. The larger the building’s GLA, the more space there is to lease out, and therefore, the greater the potential for generating rental income. It also plays a vital role in determining the value of a commercial property. Investors often compare the GLA of different properties before finalizing their investment decisions.

According to a report by JLL (Jones Lang LaSalle), the global retail sector accounted for 36% of total GLA in commercial real estate in 2020.

Source- depositphotos.com

Calculating Gross Leasable Area

Calculating the Gross Leasable Area involves measuring the building owners total area designed for tenant occupancy. This includes the measurement of the interior walls but excludes areas such as elevators, stairwells, and maintenance rooms. In multi-tenant buildings, the GLA includes the tenant’s proportionate share of the common areas.

Gross Leasable Area Vs. Other Metrics

While Gross Leasable Area is a critical metric in real estate, it’s not the only one. There are other measurements like Gross Building Area, Rentable Area, and Usable Area that provide different insights into a property’s value and potential.

Difference Between Gross Leasable Area And Gross Building Area

The Gross Building Area (GBA) refers to the total floor area of a building, including all occupiable and non-occupiable spaces, whereas the Gross Leasable Area only includes the space in commercial building that can be leased to tenants. Thus, the GBA is always higher than the GLA since it also includes areas such as stairwells, elevators, and mechanical rooms that aren’t part of the GLA.

Mall of America, located in Bloomington, Minnesota, is one of the largest shopping malls in the world, boasting a GLA of over 5.5 million square feet.

Gross Leasable Area Vs. Rentable Area

The Rentable Area is another common term in real estate. While it sounds similar to Gross Leasable Area, there is a key difference. The Rentable Area includes the GLA plus a proportionate share of the building’s common areas, like lobbies and hallways. As a result, the net Rentable Area, is typically larger than the Gross Leasable Area.

Gross Leasable Area Vs. Usable Area

The Usable Area, on the other hand, refers to the space that a tenant can actually use for their operations, excluding common areas. In contrast to net leasable area, the Gross Leasable Area includes all space that a tenant has exclusive rights to, whether they use it for their operations or not. Therefore, the Usable Area tends to be smaller than the Gross Leasable Area.

The GLA of the Dubai Mall, one of the largest malls globally, is approximately 4.5 million square feet.

Source- depositphotos.com

Implications Of Gross Leasable Area

The Gross Leasable Area has several implications in the realm of commercial real estate. It impacts rental calculations and who acquire commercial real estate leases, and significantly affects the overall value of the property.

How Gross Leasable Area Affects Rent

Rents for commercial properties are typically determined based on the Gross Leasable Area. The larger the GLA, the higher the potential rent. Tenants usually pay a base rent plus a proportionate share of operating expenses based on their portion of the total GLA. Therefore, a precise calculation of gross potential rent from the GLA is critical for both landlords and tenants.

A report by the Urban Land Institute (ULI) indicates that the U.S. office sector had a vacancy rate of 40% in 2020, leading to increased interest in repurposing office space at GLA for other uses.

Gross Leasable Area And Commercial Leases

When negotiating commercial leases, the Gross Leasable Area plays a significant role. It is used to calculate the tenant’s rent and their share of the building’s operating expenses. Hence, understanding the GLA is crucial for tenants to ensure they’re getting a fair deal.

Impact On Property Value

The Gross Leasable Area also impacts the value of a commercial or multifamily property. Properties with larger GLAs generally have higher market values because they have more space that can be rented out, leading to greater income potential. Therefore, property owners and investors pay close attention to the GLA when assessing a property’s value.

As of 2021, the average rental rate per square footage for retail GLA in the United States was about $135 per square foot, according to Statista.

Source: www.depositphotos.com

Final Note

In conclusion, understanding the Gross Leasable Area is crucial for anyone involved in commercial real estate. Whether you’re a property owner, an investor, or a tenant, having a clear grasp of this concept can help you make informed decisions and maximize your return on investment. Just remember, while GLA is a critical factor, it’s not the sole determinant of a property’s value or potential. Therefore, it should be considered in conjunction with other important metrics like location, market conditions, and property condition.

By now, you should have a comprehensive understanding of the Gross Leasable Area and its implications in the world of real estate. Armed with this knowledge, you’ll be better equipped to navigate the complex landscape of commercial property investment and leasing.

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