The Essential Concepts of Usable Area and Useful Life
What is Usable Area?
Usable Area refers to the occupiable part of an office or a building floor. It’s generally measured from paint to paint inside the permanent walls, extending to the middle of partitions separating one tenant’s space from another on the same floor. Importantly, there is no deduction for interior beams or columns.
Examples of Usable Area measurement:
- For multi-tenant floors, stairwells and elevators aren’t counted in usable area measurements.
- BOMA publishes guidelines that describe these measurement techniques.
Gauging the Useful Life of a Building and Its Assets
- Appraisal Perspective: The useful life in appraisal is the economic period during which a positive cash flow is expected for the improvements. For instance, a brick warehouse is expected to have a longer useful life than a wood-framed apartment building. Here’s why:
Examples:
- A brick warehouse may have a useful life of 50 years.
- A wood-framed apartment building typically has a shorter useful life, around 30 years.
- Accounting Perspective: In accounting and taxation, the term useful life signifies the period over which a building or an asset can be depreciated. Income tax regulations offer specific timelines for various types of properties.
Examples:
- For tax purposes, apartments have a useful life of 27½ years.
- Office buildings may have a useful life given at 39 years for tax depreciation.
Frequently Asked Questions
What is the difference between Usable Area and Gross Leasable Area?
Gross Leasable Area (GLA) includes all areas of a building that can be rented to tenants, including common areas, corridors, and restrooms, whereas Usable Area excludes these portions, only considering spaces completely occupiable by tenants.
How does useful life impact the value of a property?
The useful life of a property directly affects its depreciation schedule and ultimately its residual or salvage value at the end of its useful life. Longer useful life generally indicates lower annual depreciation and a higher total appraised value.
Why is it important to measure Usable Area accurately?
Accurate measurement of the Usable Area is vital for determining the actual rentable space available to tenants, establishing fair rental rates, and ensuring the efficient use of space within a building.
What are some factors that can extend the Useful Life of a building?
Factors that can extend the useful life include regular maintenance and updates, high-quality initial construction, and favorable environmental conditions. Ensuring adherence to building codes and standards, as well as timely renovations, also play significant roles.
How is the BOMA Usable Area different from other measurement standards?
BOMA’s measurement standard focuses on consistency and comparability, aiming at providing a benchmark for landlords and tenants alike. Other measurement standards may vary based on regional practices or specific industry requirements.
Conclusion
Understanding these critical concepts, Usable Area, and Useful Life, can significantly impact real estate valuation, space productivity, and long-term investment analysis. Whether for appraising a property or strategizing depreciation, mastering these principles is key for industry success.
Related Terms: BOMA measurements, Efficiency Ratio, Gross Leasable Area, Economic Life, Depreciation.
