Definition
Net Leasable Area (NLA) is a real estate term used to describe the total floor space in a building or project that is available and can be leased to tenants. It excludes areas such as common spaces (hallways, lobbies), and mechanical areas (space for heating, ventilation, and air conditioning systems or elevators). NLA is a critical component in determining rental prices and is often used in leasing contracts.
Examples
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Office Buildings: In an office building, the Net Leasable Area would be the sum of all office spaces available for rent, excluding shared areas like hallways, restrooms, and lobby spaces.
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Shopping Malls: For a shopping mall, the Net Leasable Area includes the individual retail stores available for lease, not the aisles, food courts, or common areas.
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Industrial Warehouses: Industrial spaces would consider the storage and operational spaces for lease, leaving out any common facilities such as loading docks if they are shared.
Frequently Asked Questions (FAQs)
What is the difference between Net Leasable Area (NLA) and Gross Leasable Area (GLA)?
NLA refers to the space that can be rented out and does not include common or mechanical areas, while GLA includes all rentable areas within a building, including common areas.
How is Net Leasable Area calculated?
Net Leasable Area is calculated by measuring the total floor space available for tenants and subtracting the area occupied by common facilities and building operational systems.
Why is Net Leasable Area important for tenants and landlords?
For tenants, NLA helps in understanding the exact space they are paying for. For landlords, it is crucial for accurately calculating rent and maximizing rental income.
Does Net Leasable Area include bathrooms?
No, typically bathrooms and other common areas such as hallways and lobbies are excluded from the Net Leasable Area.
Can Net Leasable Area change over time?
Yes, changes in the structure of the building such as renovations, additions, or re-purposing of spaces can alter the Net Leasable Area.
- Gross Leasable Area (GLA): Total floor area designed for tenant use, including common areas and shared facilities.
- Common Areas: Areas within a building that are available for use by more than one tenant, such as hallways, lobbies, and restrooms.
- Building Efficiency Ratio: A ratio comparing the total useable or net leasable area to the gross area of a building.
Online References
Suggested Books for Further Studies
- “Real Estate Investment and Acquisition Workbook” by Howard A. Zuckerman and George D. O’Dell
- “Commercial Real Estate Analysis and Investments” by David M. Geltner and Norman G. Miller
- “The Complete Guide to Investing in Commercial Real Estate” by Steve Berges
Fundamentals of Net Leasable Area (NLA): Real Estate Basics Quiz
### What does Net Leasable Area (NLA) exclude?
- [x] Common areas and mechanical spaces
- [ ] Tenant office spaces
- [ ] Entire building's area
- [ ] Only the mechanical spaces
> **Explanation:** Net Leasable Area excludes areas such as hallways, restrooms, lobbies, and mechanical rooms. It only includes the space available for lease to tenants.
### Net Leasable Area is specifically crucial for calculating which of the following?
- [x] Rental payments
- [ ] Building construction costs
- [ ] Common area maintenance fees
- [ ] Property tax
> **Explanation:** NLA is used to determine the space tenants will be paying for, thus directly impacting the rental payments.
### When calculating Net Leasable Area, which space would you subtract from the Gross Leasable Area?
- [x] Common areas and space devoted to HVAC systems
- [ ] Tenant-occupied spaces
- [ ] Stairways only
- [ ] Windows and doors
> **Explanation:** Common areas such as hallways, restrooms, and spaces used for cooling or heating systems should be subtracted from the Gross Leasable Area.
### Is the lobby of a building considered part of the Net Leasable Area?
- [ ] Yes
- [x] No
> **Explanation:** Lobbies are considered common areas and are not included in the Net Leasable Area.
### Between Gross Leasable Area (GLA) and Net Leasable Area (NLA), which includes common areas?
- [x] Gross Leasable Area (GLA)
- [ ] Net Leasable Area (NLA)
> **Explanation:** Gross Leasable Area includes common areas, while Net Leasable Area does not.
### Why might a landlord be concerned with a high proportion of non-leasable areas?
- [x] It reduces the total Net Leasable Area and potential rental income
- [ ] It increases property value
- [ ] It lowers operational costs
- [ ] It improves tenant satisfaction
> **Explanation:** High proportions of non-leasable areas reduce the Net Leasable Area, thus potentially resulting in lower rental income for the landlord.
### Consider a building renovation that increases tenant spaces at the expense of a reduced lobby. What happens to the Net Leasable Area?
- [x] It increases
- [ ] It decreases
- [ ] It remains unchanged
- [ ] It becomes undefined
> **Explanation:** By increasing tenant spaces and reducing common areas, the Net Leasable Area increases.
### What is the primary use of Net Leasable Area figures?
- [x] Determining lease contracts and rental prices
- [ ] Measuring the height of buildings
- [ ] Estimating exterior finishing costs
- [ ] Calculating property insurance
> **Explanation:** NLA figures are primarily used to determine lease contracts and corresponding rental prices, as they define the actual area tenants will occupy.
### In a mixed-use building, does the Net Leasable Area include parking spaces?
- [ ] Yes
- [x] No
> **Explanation:** Parking spaces are generally not considered part of the Net Leasable Area as they are often categorized separately or included in common areas.
### Why might tenants prefer spaces evaluated by Net Leasable Area?
- [ ] They get a larger area
- [ ] They get more amenities
- [x] They only pay for the space they occupy
- [ ] They have fewer leases to sign
> **Explanation:** Tenants prefer NLA evaluations as they are paying strictly for the space they occupy, making their cost of rent more transparent and fair.
Thank you for exploring the intricacies of Net Leasable Area. Delve deeper with the suggested resources and elevate your understanding of commercial real estate metrics!
