Why Square Feet Don't Matter!

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!