Gross Leasable Area
Gross leasable area (GLA) is the space in a commercial property that is designed for the exclusive use of a tenant.
What is Gross Leasable Area?
Gross leasable area (GLA) refers to the space in a commercial property set aside for a tenant's exclusive use. The gross leasable area includes mezzanines, basements, upper floors, and common spaces such as public bathrooms, lobbies, or maintenance areas. The Building Owners and Managers Association (BOMA) is an international organization that sets standards for how commercial and industrial buildings are measured, particularly the GLA.
According to the standards defined by BOMA, the GLA is measured from the centerline of the walls separating tenants, and from the outside face of the exterior walls. Internal walls, columns, and other support structures (but not those shared with other tenants) are also incorporated into a GLA measurement. To ensure that a GLA estimation is accurate, it’s always recommended to refer to BOMA’s exact standards, which can be found on their website.
The Relationship Between GLA and Gross Potential Rent
Gross potential rent (GPR) is a calculation in commercial real estate that measures the potential rent a commercial or multifamily property can generate — typically on an annual basis. Since it is a common industry practice that properties are rented on a per square foot (PSF) basis, GLA can be utilized to determine a building’s estimated GPR. As an example, a commercial building with a GLA of 7,000 square feet that is renting at $25/PSF would have a GPR of $175,000. Investors should note, however, that GPR is not an accurate calculation of what a building will actually make in revenue since the calculation assumes a building occupancy of 100%, which is not usually the case.
Related Questions
What is the definition of gross leasable area?
Gross leasable area, often shortened to GLA, is the designated floor area in a commercial property that is for the exclusive use of a tenant. Gross leasable area typically includes mezzanines, basements, and upper floors, but excludes shared areas, such as elevators, loading docks, vault rooms, public bathrooms or maintenance/utility areas. Gross leasable area is usually measured from the center of the wall separating tenants. Internal walls (but not those shared with other tenants) are incorporated into GLA.
Sources: Apartment Loans and Multifamily Loans
How is gross leasable area calculated?
Gross leasable area is typically measured from the centerline of the walls separating tenants, and from the outside face of exterior walls. Internal walls, columns, and other support structures (but not those shared with other tenants) are typically incorporated into GLA.
Gross potential rent (GPR) is an estimation of the potential rent that a commercial or multifamily property can generate. The metric is usually representative of the potential rent on an annual basis. Since most properties are rented on a PSF (per square foot) basis, gross leasable area can be utilized to determine a building’s estimated GPR. In other words, if a building with a GLA of 5,000 sq. ft., was renting for $20/PSF, that property would have a GPR of $100,000 (5,000 x 20 = 100,000). The gross potential rent metric is only for estimation purposes and is in no way a completely accurate calculation of what a building will actually make in revenue, however, since building occupancy almost never reaches 100%.
What are the benefits of calculating gross leasable area?
The benefits of calculating gross leasable area include being able to calculate the gross potential rent (GPR) of a property. This is done by multiplying the annual market rent for a certain building by its GLA. For example, if the annual market rent for a certain building is estimated at $10/square foot, and the building's GLA is 20,000 square feet, then the annual GPR of the building would be $200,000. Additionally, looking at the building's rent roll (a record of all current leases and rental income), and its trailing twelve months (TTM) or trailing three months (T3) financial metrics can be more effective when acquiring commercial real estate.
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What are the drawbacks of calculating gross leasable area?
The main drawback of calculating gross leasable area is that it is only an estimation of the potential rent that a commercial or multifamily property can generate. Since buildings are rarely at 100% occupancy, most make significantly less than the estimated GPR. Therefore, if you plan to acquire commercial real estate, it may be more effective to look at the building's rent roll (a record of all current leases and rental income), and its TTM (trailing twelve months) or T3 (trailing three months) financial metrics. (Source 1, Source 2)
How does gross leasable area affect commercial real estate financing?
Gross leasable area (GLA) is an important metric for commercial real estate financing, as it can be used to calculate the gross potential rent (GPR) of a property. This GPR can be used to help lenders determine the amount of loan they are willing to provide for a property. Additionally, lenders may also look at the building's rent roll (a record of all current leases and rental income), and its trailing twelve months (TTM) or trailing three months (T3) financial metrics to help determine the amount of loan they are willing to provide.
For more information, please see the following sources:
What are the best practices for calculating gross leasable area?
It is standard practice for gross leasable area to be measured from the centerline of the walls separating tenants, and from the outside face of exterior walls. Internal walls, columns, and other support structures (but not those shared with other tenants) are typically incorporated into GLA.
Investors can use GLA to help calculate Gross Potential Rent (GPR). For example, if the annual market rent for a certain building is estimated at $10/square foot, and the building's GLA is 20,000 square feet, then the annual GPR of the building would be $200,000.
It's important to remember that GPR is the most a project could make in rent. And, since buildings are rarely at 100% occupancy, most make significantly less. Therefore, if you plan to acquire commercial real estate, it may be more effective to look at the building's rent roll (a record of all current leases and rental income), and its Trailing Twelve Months (TTM) or Trailing Three Months (T3) financial metrics.