Net lettable areas Different types of buildings have different definitions of what is included in the building areas. The Property Council of Australia (PCA) has developed an industry standard for measuring building areas of different property types that is widely used. Net lettable area (NLA) Net lettable area (NLA) is used to calculate tenancy areas in: office buildings office and business parks. In general terms, the NLA of a building is the sum of its whole floor lettable areas. The areas excluded from each tenancy s lettable area (provided they are standard building facilities) are: stairs fire stairs accessways lift shafts toilets recessed doorways cupboards fire hose reel cupboards smoke lobbies escalators plant/motor rooms telecommunications cupboards tea rooms and other service areas lift lobbies and areas dedicated to public spaces. Net lettable areas 1
Net lettable area sub-divided floors For sub-divided floors, measurements are taken to the centre line of intertenancy walls or partitions. However, where walls/partitions adjoin public areas (e.g. halls, atria and lobbies), measurements are taken to the line of the dominant portion of their public area faces (see Figure 5 in Annexure 1 at the end of this section). Gross lettable area retail (GLAR) Gross lettable area retail (GLAR) is used to calculate retail tenancy areas in commercial buildings shopping centres free-standing shops, strip shops, terrace style or semi-detached shops in suburban streets. In general terms, GLAR is the aggregate of floor space contained within a tenancy at each floor level. Gross floor area Gross lettable area (GLA) is used to calculate tenancy areas in: industrial buildings warehouses showrooms freestanding supermarkets. In general terms, GLA is the floor space contained within a tenancy at each floor level. With regard to external building walls, measurement is taken from the dominant portion of the outside faces of walls of the building alignment. With inter-tenancy walls, partitions or common areas, measurement is taken from the centre line of the walls. In a multiple tenanted building, the following areas (provided they are standard building facilities) are excluded from each tenancy s lettable area: stairs cupboards recessed doorways fire stairs toilets 2 Net lettable areas
fire hose reel cupboards accessways lift shafts telecommunications cupboards escalators tea rooms and other service areas plant/motor rooms smoke lobbies. Common areas in sub-lease space Where a floor or tenancy is divided for sub-leasing, additional common areas that arise are not considered part of public spaces or thoroughfares. However, the areas would be included in the area of the head leaseholder (be they tenant or occupier). Rental surveys Before the valuation of a property can be undertaken, the valuer must understand whether the rent of the subject property is at market whether it has reached or exceeded its full market potential. To determine the market rent of a property, you need to carry out a full rental analysis. From this, you use comparable rents and discount or exclude those that are not market rents. The object of market rental analysis is to bring together all the information the valuer may need in determining the market rental value of the property. The process involves preparing a schedule of comparable properties, analysing the results and comparing them to the subject property. Market rental evidence can be analysed in different ways to reveal patterns and trends. There are no real rules as to what information should be included in an evidence schedule but it should include information such as address, area, annual rental, whether the rental is net or gross, tenant, commencement date, lease term and rent reviews. Other information such as outgoings payable and any parking available should also be included. The factors for analysis include: the area of the premises larger or small than the subject property? the lease commencement or start date how old is the evidence? what the rent reviews are type and how often? who the tenant is what sort of strength and security does the tenant provide? Net lettable areas 3
and other factors such as parking spaces and incentives given. Other factors that should also be given consideration are age of building, condition of tenancy and location. Method of rental valuation The unit of value for comparison with market evidence for most nonresidential properties is dollars per square metre, per annum, net ($psm or $/m 2 p.a. net), although with some smaller properties (typically retail shops) rental per week is the more common unit. The method of valuation is direct comparison on using $/m 2 p.a. net. An example using this method of valuation follows: Example Summary of market evidence Address Net annual rent Gross floor area m 2 Net rent $/m2 6 Jones Street, Smithfield $100 000 600 $166.66 10 Jones Street, Smithfield $150 000 700 $214.29 15 Smith Street, Smithfield $130 000 800 $162.50 Subject property Industrial property at 5 Jones Street, Smithfield Gross floor area of 550 m 2 Current passing net rent of $71 500 which equates $130/m 2 p.a. net The subject property has better internal clearance then the property at 6 Jones Street but is inferior in terms of standard of office accommodation, natural light and age to 10 Jones Street. It is of a similar standard to 15 Smith Street (however, this property has a larger gross floor area). Therefore a rate $170/m 2 p.a. net is reasonable for the subject property. Rental valuation 500 m 2 $170/m 2 p.a. net = $85 000 Note that the subject property has a current passing rent of $71 500 or $130/m 2 p.a. net. 4 Net lettable areas
Using the valuation at $170/m 2 p.a. net, we can conclude that the subject property is not receiving a market rental, and if the property was placed on the open market today, the owner would achieve $170/m 2 p.a. net. Net lettable areas 5