In commercial real estate, too much emphasis is place on square footage (“SF”) as a metric for measurement.
Here are several arguments why square footage is not relevant:
1. SF is not a universal standard, thus not valuable as a unit of measurement or comparison. Each landlord’s calculation of a square foot varies;
2. The predominance of loss factors erodes the reliability of any value of SF as a measurement. It’s akin to Coca-Cola offering a 15 ounce pint in one store and a 14 ounce pint in another store;
3. Accordingly, the SF of a piece of commercial space is a relatively arbitrary number, unnegotiable and accepted by most at face value. Once lease negotiations end, no party will ever think again about the specific amount of SF negotiated for;
4. As a corollary; landlords refuse to quote SF in the lease documentation. If this number were meaningful, it would serve as a stake in the ground. Instead it remains nebulous and subject to remeasurement to the benefit of a single party (duh, the landlord);
5. SF only serves as misdirection to other hidden charges. Like a magician’s dazzle, paying attention only to SF charges will obfuscate many other hidden fees in a lease transaction. Warning: the base $ per SF price never represents total costs;
6. The media is in on “the fix”. Research provided to and promoted by the media focuses on average SF costs in a particular submarket. Guess who provides the research and pays for the advertising in the media (again, duh, the landlords);
7. Buyer’s validation (aka “ego”) is in on “the fix”, too: every business owner who quotes the great $/SF rate they negotiated on a lease is ignoring the impact of loss factors and total costs;
8. Headcount(s) or density metrics are better measurement criteria. The cost per employee or per desk are more suitable but less quoted business metrics;
9. Not every SF is equal. Actually, the assumption that all SF are equivalent flies in the face of another real estate “axiom”: location, location, location. If the location axiom holds true, then SF “X” cannot equal SF “Y”, certainly there are premiums for neighorhood, building quality, etc.;
10. Rising prices obliterate SF values. In frothy, rising markets like today’s, the cost of square foot inefficiencies is exacerbated further.
How should a savvy business owner adapt to these conditions? Here are some tips:
* Focus on total costs divided by total capacity (# of seats or employees);
* Ask to have SF amounts quoted in any lease documentation;
* Don’t buy-in or believe the media hype!;
* Speak in terms of density metrics or monthly costs instead of per SF rates;
* Always quantify economic tradeoffs between properties, neighborhoods and relative amenities;
* In rising markets, find shorter-term space solutions; wait for market corrections to take place before locking-in longer term rents and leases!