NLA: Net Leasable Area

Net Leasable Area (NLA) refers to the portion of a commercial property that is available for tenant use, typically measured in square feet or meters, excluding common areas.

Net Leasable Area (NLA) is a crucial concept in commercial real estate. It refers to the area within a commercial property that can be leased to tenants. Unlike the Gross Leasable Area (GLA), the NLA excludes common areas such as lobbies, corridors, elevators, restrooms, and utility rooms. It provides a more accurate measure of the space that generates revenue for the property owner.

Calculating NLA

Basic Formula

To calculate NLA, you typically subtract the non-leasable areas from the total gross area:

$$ \text{NLA} = \text{Total Gross Area} - \text{Common Areas} $$

Where:

• Total Gross Area is the entire area of the property.
• Common Areas include spaces shared by all tenants.

Example

Consider a commercial building with a total gross area of 10,000 square feet. If the common areas account for 2,000 square feet, the NLA would be:

$$ \text{NLA} = 10,000 \, \text{sq ft} - 2,000 \, \text{sq ft} = 8,000 \, \text{sq ft} $$

Types and Special Considerations

Office Buildings

In office buildings, the NLA would typically include individual offices, private restrooms, and dedicated storage rooms, while excluding lobbies, shared restrooms, and hallways.

Retail Spaces

Retail properties might have leasable areas in shops and boutiques while excluding atriums, food courts, and shared loading docks.

Industrial Properties

For industrial or warehouse properties, the NLA would cover areas like factory floors and storage spaces but not shared loading bays or maintenance rooms.

Historical Context

The concept of NLA has evolved alongside modern commercial real estate practices, becoming standardized in various countries to facilitate better comparison and valuation of properties. Historically, ambiguities in what constituted leasable space led to inconsistencies in property valuation and leasing agreements.

Applications in Real Estate

Leasing Agreements

Accurate NLA calculations are essential for drafting leasing agreements, as they determine rental rates based on the usable space rather than the total area.

Property Valuation

NLA is a key metric in the appraisal process, impacting the valuation and potential sale price of a property.

Investment Analysis

Investors use NLA to assess the revenue-generating potential of a property, considering factors like location, tenant mix, and market demand.

Comparisons and Related Terms

Gross Leasable Area (GLA)

While GLA includes all areas available to be leased to tenants, including some shared spaces, NLA is more restrictive, considering only the areas exclusively occupied by tenants.

Usable Area

Similar to NLA, usable area excludes common areas but may differ slightly in local terminology and regulatory definitions.

FAQs

Why is NLA important for tenants?

Tenants are charged based on the NLA, ensuring they only pay for the space they exclusively use.

How does NLA impact property management?

Property managers rely on accurate NLA calculations for efficient space planning, occupancy metrics, and optimizing rental income.

Can NLA vary for similar properties?

Yes, NLA can vary based on building design, configuration, and how common areas are allocated.

References

1. Modern Real Estate Practice. Galaty, Fillmore W. “20th Edition.” (2022)
2. The Real Estate Appraisal: Principles and Concepts. Fisher, Jeffrey D. (2019)
3. Property Management Best Practices. Stone, Donald R. (2021)

Summary

Net Leasable Area (NLA) is a foundational metric in commercial real estate, defining the portion of a property available for lease and excluding common areas. Proper understanding and calculation of NLA ensure fair leasing agreements, accurate property valuations, and effective investment decisions. As commercial real estate continues to evolve, the relevance and application of NLA remain pivotal in the industry.