Net Leasable Area (NLA)

Definition

Net Leasable Area (NLA) is a crucial metric in the commercial real estate industry, representing the rentable space within a property. NLA includes only the usable spaces leased to tenants and excludes common areas like lobbies, stairwells, restrooms, and mechanical rooms that do not generate rental income. NLA is typically used to calculate rent and the value of commercial properties.

Examples

Office Building: In a high-rise office building with 100,000 square feet of total floor area, 85,000 square feet might be designated as the Net Leasable Area after excluding 15,000 square feet of common areas, such as elevators, lobbies, and corridors.
Shopping Mall: A shopping mall may have a total area of 500,000 square feet. After excluding the area occupied by communal restrooms, hallways, and food courts, the Net Leasable Area might be around 400,000 square feet.

Frequently Asked Questions

What is the difference between GLA (Gross Leasable Area) and NLA (Net Leasable Area)?

Gross Leasable Area (GLA) includes the total area designed for tenant occupancy and exclusive use, while Net Leasable Area (NLA) excludes non-rentable shared areas like lobbies and restrooms.

How is NLA calculated in commercial properties?

NLA is typically calculated by measuring the interior of the tenant’s space, often to the center of partition walls separating tenants, and excluding common areas that are not part of the leased premises.

Can NLA affect rental rates?

Yes, rental rates are often based on the NLA, meaning tenants are charged only for the space they occupy. The exclusion of common areas can lead to higher rents per square foot for the usable space.

Does NLA apply to residential properties?

NLA is primarily used for commercial properties, though similar concepts can apply to residential properties with shared amenities.

Why is NLA important for property valuation?

NLA is critical for property valuation because it directly affects the rental income a property can generate. Higher NLA equates to more rentable space, thus potentially higher revenue for property owners.

Gross Leasable Area (GLA): The total area intended for the use of tenants including all commercial spaces within a property.
Common Area Maintenance (CAM): The areas within a commercial property that are available for common use by all tenants, which include corridors, lobbies, and restrooms.
Occupancy Rate: The percentage of the total NLA that is currently leased to tenants.
Fit-Out: The process of making interior spaces suitable for occupation, where the tenant’s specific requirements are incorporated into the Net Leasable Area.

Online References

Suggested Books for Further Studies

“The Complete Guide to Real Estate Investing in Commercial Properties” by Robert E. Oliphant
“Commercial Real Estate Leasing: Tenant and Landlord Lessor’s Perspective” by Mark Weisleder
“Real Estate Finance and Investments” by William Brueggeman and Jeffrey Fisher
“The Due Diligence Handbook For Commercial Real Estate” by Brian Hennessey
“Property Development” by Laurenco Dias

Fundamentals of Net Leasable Area: Commercial Real Estate Basics Quiz

### What does NLA stand for? - [x] Net Leasable Area - [ ] Net Level Area - [ ] Nominal Leasing Aspect - [ ] Non-Linear Analysis > **Explanation:** NLA stands for Net Leasable Area, which refers to the portion of a building that can be leased to tenants. ### Does NLA include common areas such as lobbies and restrooms? - [ ] Yes, NLA includes all areas. - [ ] Yes, but only if they are small. - [x] No, NLA excludes common areas. - [ ] Only in specific industrial buildings. > **Explanation:** NLA excludes common areas such as lobbies, restrooms, and other communal spaces. ### How is NLA relevant to a tenant? - [ ] It determines security deposits. - [x] It determines the rent payable. - [ ] It sets the maximum occupancy limit. - [ ] It defines the building's structure. > **Explanation:** NLA is used to calculate the rent a tenant will pay since it represents the actual usable space leased. ### What type of properties primarily use the NLA metric? - [ ] Residential homes - [ ] Public parks - [ ] Industrial warehouses - [x] Commercial properties > **Explanation:** NLA is primarily used in commercial properties to assess rentable space. ### What is typically excluded from NLA calculations? - [ ] Office spaces - [ ] Retail outlets - [ ] Kitchen areas - [x] Mechanical rooms > **Explanation:** Mechanical rooms and other non-rentable areas are typically excluded from NLA calculations. ### Can NLA be the same as total building area? - [ ] Yes, in all cases. - [ ] Rarely, only under special conditions. - [x] No, NLA is usually less. - [ ] Only for single-tenant buildings. > **Explanation:** NLA is typically less than the total building area as it excludes non-leasable communal areas. ### Why is NLA crucial for property owners? - [ ] For planning social events. - [x] For calculating potential rental income. - [ ] For determining the building's age. - [ ] For choosing construction materials. > **Explanation:** NLA is critical for calculating the potential rental income and return on investment for property owners. ### Is maintenance of common areas usually covered by NLA? - [ ] Yes, as a rule. - [ ] No, never. - [x] Sometimes, through CAM charges. - [ ] It depends on the city. > **Explanation:** Maintenance of common areas is often covered through Common Area Maintenance (CAM) charges, which are associated but separate from NLA. ### How does NLA impact tenants in shared buildings? - [x] Tenants are charged only for their exclusive space. - [ ] All tenants share the same rental costs. - [ ] NLA impacts insurance policies. - [ ] It affects the tenant's ownership of the building. > **Explanation:** Tenants are charged rent based on the NLA, which includes only their exclusive space, not shared areas. ### Which area has the greatest effect on a building's NLA if converted to leasable space? - [ ] Parking lots - [ ] Rooftops - [x] Common lobbies - [ ] Exterior landscapes > **Explanation:** Converting common lobbies or similar communal areas into individual tenant spaces can significantly increase the NLA.

Thank you for exploring the concept of Net Leasable Area and testing your knowledge with our quiz! Keep up the excellent work in your real estate endeavors!