No matter whether you are a property owner or a prospective tenant, understanding how properties are measured for lease is an important part of commercial lease arrangements.
In commercial real estate, there are two main measurements used to determine the size of the lease space - net lettable area (NLA) and gross lettable area (GLA).
These are the two most often used measures of commercial lease space in Australia. It is important to understand these two measurements and the differences between them because it impacts and specifies what is and isn’t included in your tenancy, and the overall rent tenants pay for their premises.
Read on to find out what the difference is between NLA and GLA and why they are important.
What is Gross Lettable Area?
Gross Lettable Area (GLA) is typically used to calculate tenancy areas for warehouses, industrial buildings and showrooms.
It is calculated using measurements taken from exterior wall surfaces or the centreline of any shared walls between tenancies.
That means the calculation includes all internal features and services such as toilets, space for plant and equipment, any storage space and stairwells.
What is Net Lettable Area?
Net Lettable Area (NLA) is used to calculate the tenancy areas for office leases. Net Lettable Area represents the sum of a building’s whole floor lettable areas. Gross Lettable Area is calculated using measurements from external walls, however NLA is calculated using measurements taken from the internal finished surfaces of permanent walls and dominant portions of the permanent outer building walls.
Therefore, the measurement does not include columns, piers or structural columns. It also does not include areas provided as standard common area facilities like lifts, toilets and tea rooms and excludes areas that house plant and equipment like air-conditioning and power services.
What is the Property Council’s Method of Measurement?
The Property Council of Australia (PCA) is the industry body that advocates on behalf of the property sector.
It publishes a document titled Methods of Measurement that is the industry standard guide to measuring property for lease.
The Property Council's method of measurement guide was produced in an effort to bring consistency to property measurements in Australia and includes detailed explanations for how to undertake relevant measurements. The PCA recommends all lease discussions should begin with agreement from both parties on the methods to be used to measure floor space. Only once both parties agree on the measurements obtained should the rental rates be negotiated.
What is the importance of GLA and NLA in office leasing?
Understanding and calculating GLA and NLA are a critical part of the office leasing process.
Tenants and property owners should first understand what method is being used to calculate floor space and the implications of the method of calculation.
For office leasing, NLA is an appropriate measurement of the exact floor space you will be able to practically use as part of your lease.
GLA, on the other hand, is the total floor space and is not a true representation of how much floor space you will be able to physically occupy. For instance, NLA does not include features like stairs, accessways, toilets, fire hose reel cupboards, while GLA includes these because the measurements are taken from outside the building.
However, in multi-tenanted buildings, these features are excluded when GLA is calculated.
It is important to understand NLA and GLA so you can then see what is included in your lease and accurately plan how much space you can actually fit out and use.
How Do You Calculate Gross Lettable Area and Net Lettable Area?
In Australia, GLA and NLA are calculated based on the Methods of Measurement process set out in the PCA’s guide. GLA is calculated by measuring everything within the external building walls from the dominant portion of the outside faces of the walls. This includes stairs, toilets, cupboard housing building services, covered loading docks, lifts and lift shafts.
If the property has a mezzanine level erected by a tenant, it should be shown and treated separately. If there are multiple tenants in the building, then the GLA should be calculated excluding all features like stairs, toilets, cupboards and plant and motor rooms.
When calculating NLA, structural columns, fire hose reels attached to walls, engaged perimeter columns or piers, window mullions and window frames are all included in the calculation.
Not included are:
- Lift shafts
- Plant/motor rooms
- Tea rooms
- Fire stairs
- Public spaces or thoroughfares like foyers and accessways
- Service vehicle areas
Also, it’s important to note that balconies, terraced areas and covered areas are excluded from NLA calculations, so these may require separate rental negotiations.
Common areas can impact on GLA and NLA
Common areas can have an impact on GLA and NLA calculations. Common areas or public areas such as lift lobbies, hallways, stairs and lifts are not included in NLA measurements.
However, if an area of an office building is sublet to a separate tenant and a new common area is created when the floor is divided, this would not be defined as a public space.
This area would be included in the measurements for the lease belonging to the head tenant.
Common areas are included in GLA measurements where there is one tenant. However, where there is more than one tenant, common areas such as toilets, hallways and stairs are not included in the calculations.
Similarly, if a new common area is created where a part of the building is sublet to a different tenant, this area would still remain the responsibility of the head tenant.
Understand how lease spaces are calculated
Understanding how commercial lease spaces are calculated is an important part of the lease negotiation process.
Property owners and prospective tenants need to know what is included in a lease and how the lease area will be measured before negotiations get underway.
For tenants, knowing the difference between GLA and NLA will ensure there is a clear picture of the practical space available to occupy as well as how the measurements impact the lease cost.