Building efficiency ratio is the share of a building's rentable area that a tenant can actually occupy, calculated by dividing usable square feet by rentable square feet. A higher ratio means the tenant pays for less common area. Office and industrial buildings typically run 80 to 85 percent efficient, apartments 70 to 75 percent.
How Is Building Efficiency Ratio Calculated?
Building efficiency ratio is calculated by dividing usable square feet by rentable square feet and expressing the result as a percentage. Usable square feet is the space a tenant occupies. Rentable square feet adds the tenant's pro-rata share of lobbies, corridors, and restrooms. The gap between the two is the common area the tenant pays for but cannot exclusively use.
The formula is direct:
Building efficiency ratio = Usable square feet / Rentable square feet
Per multifamilyrefinance.com, the ratio is sometimes called the efficiency factor or the net-to-gross ratio, and it is the inverse relationship to loss factor. A building that is 85 percent efficient carries a 15 percent loss factor. Both describe the same spread between usable and rentable area from opposite directions.
Input | Meaning |
Usable square feet | Area the tenant exclusively occupies |
Rentable square feet | Usable area plus pro-rata share of common area |
Efficiency ratio | Usable divided by rentable, as a percent |
Loss factor | 1 minus the efficiency ratio |
Why Building Efficiency Ratio Matters
Building efficiency ratio matters because it determines how much of a tenant's rent buys usable space versus common area. At an 85 percent ratio a tenant paying for 10,000 rentable square feet occupies 8,500 usable. At 70 percent the same 10,000 rentable delivers only 7,000 usable, a 1,500 square foot difference in space actually worked in.
Per commercialrealestate.loans, office and industrial buildings generally post higher efficiency than multifamily because they carry less shared circulation per tenant. For an operator comparing two office suites at the same rentable rate, the more efficient building delivers more usable space per dollar. The quotable point: efficiency ratio is the exchange rate between the space a tenant pays for and the space it can use.
Example
Two office suites each quote 12,000 rentable square feet at $40 per rentable square foot, so both cost $480,000 per year. Suite A sits in an 85 percent efficient building and delivers 10,200 usable square feet. Suite B sits in a 72 percent efficient building and delivers 8,640 usable. Same rent, 1,560 fewer usable square feet in Suite B.
Step | Suite A | Suite B |
Rentable square feet | 12,000 | 12,000 |
Efficiency ratio | 85% | 72% |
Usable square feet | 12,000 x 0.85 = 10,200 | 12,000 x 0.72 = 8,640 |
Annual rent | 12,000 x $40 = $480,000 | 12,000 x $40 = $480,000 |
Effective cost per usable SF | $480,000 / 10,200 = $47.06 | $480,000 / 8,640 = $55.56 |
Suite B costs $8.50 more per usable square foot despite the identical quoted rate. The efficiency ratio, not the headline rent, decides which suite is the better value.
Variations and Edge Cases
Building efficiency ratio is not measured identically everywhere, and the result shifts with the standard used and the floor measured. A single-tenant floor with private restrooms measures more efficient than a multi-tenant floor that carves out shared corridors. The table below covers the variants an operator should confirm before comparing two buildings.
Variant | Treatment |
Whole-building ratio | Total usable divided by total rentable across all floors |
Single-floor ratio | Usable divided by rentable on one floor, often higher on full-floor suites |
BOMA measured | Uses Building Owners and Managers Association method to define usable and rentable |
Core factor | Common area divided by usable, an alternate framing of the same spread |
The common mistake is comparing two buildings' efficiency ratios without confirming they use the same measurement standard. A building measured under one BOMA method can look more efficient than a building measured under another with no real difference in usable space.
Building Efficiency Ratio vs Loss Factor
Building efficiency ratio is often confused with loss factor, and the two describe the same gap between usable and rentable area from opposite ends. Building efficiency ratio is usable divided by rentable, the share a tenant can occupy. Loss factor is the share lost to common area, equal to one minus the efficiency ratio.
An 85 percent efficiency ratio and a 15 percent loss factor describe the identical building. Efficiency ratio answers how much space the tenant gets; loss factor answers how much it loses. A tenant comparing suites should read whichever number the landlord quotes and convert to the other, because a high efficiency ratio and a low loss factor are the same good outcome.
Frequently Asked Questions
How is building efficiency ratio calculated?Building efficiency ratio is calculated by dividing usable square feet by rentable square feet and expressing the result as a percentage. A building with 8,500 usable square feet and 10,000 rentable square feet has an efficiency ratio of 85 percent.
What is a good building efficiency ratio?Per commercialrealestate.loans, office and industrial buildings generally run 80 to 85 percent efficient, while apartments average 70 to 75 percent. A higher ratio is better for the tenant because more of the rent buys usable space rather than shared common area.
Is building efficiency ratio the same as loss factor?No. Building efficiency ratio is usable divided by rentable, and loss factor is one minus that ratio. An 85 percent efficiency ratio equals a 15 percent loss factor. They describe the same building from opposite directions.
Related Terms
Usable Square Feet
Rentable Square Feet
Loss Factor
Base Year