Most appraisal reports have clear areas for improvement with relatively little incremental cost or effort. In this series, we focus on some issues that can have material value implications. I hope you enjoy this perspective and I welcome your comments and feedback.
Rentable area calculations can vary from location to location and from property use to property use. For example, in New York City the measurement convention for office space is a Real Estate Board of New York usable area calculation, consisting of the interior dimensions measured from glass to glass and deducting vertical penetrations. The conversion of this usable area to rentable area is based on a market determined add-on or loss factor. This methodology typically results in a rentable area that exceeds the gross building area. Conversely, retail space in New York is leased based on usable area with no loss factor applied and New York’s residential market does not adhere to a uniform measurement standard. Indeed, many new condominiums reportedly measure to the middle of the wall to determine salable area. New York is a perfect illustration of how rentable area measurements can be notably different or opaque as compared to other national or international measurement standards.
The Royal Institute of Chartered Surveyors is attempting to standardize measurement methodology through its International Property Measurement Standards (IPMS) initiative. However, until such time that there is market uniformity, appraisers should address this point specifically. Rentable areas as represented in the leases, rent roll, or measurement surveys need to be qualified with their derivation methodology specified. Assumptions of accuracy and reasonableness are typical, however it is important that the appraiser describe the applicable measurement methodology and confirm that what is being applied is consistent with local market convention.
The next publication in this series will address Tenant Analysis.