The rentable ratio is a key real estate investment metric that indicates the proportion of rentable area within a building's total floor area. In general, the higher this ratio, the more profitable the property is considered to be. This article explains how to calculate the rentable ratio and how to use it in practice.
What Is the Rentable Ratio?
The rentable ratio (rentable area ratio) is the percentage of a building's total floor area that consists of income-generating space, such as leasable rooms. It does not include non-revenue areas such as elevators, entrances, shared stairways, and corridors.
Formula:Leasable room area ÷ total floor area × 100 (%)
Benchmarks by Property Size
| Building Scale | Rentable Ratio Benchmark |
|---|---|
| Large office building | 60〜70% |
| Small office building | 80〜85% |
| Typical rental office | 65〜85% |
What Should You Watch for in REIT-Held Properties?
When a REIT owns only part of a property under sectional ownership, the rentable ratio is calculated based on the rentable area within that owned section. As a result, it differs from the rentable ratio for the entire building.
In a Master Lease Arrangement
In the case of a single-tenant bulk lease or a master lease arrangement, common areas are also leased as part of the contract. That can push the rentable ratio close to 100%, making comparisons with other properties difficult.
How Can You Maximize Revenue?
If you focus only on raising the rentable ratio, you may cut non-revenue areas such as entrances, corridors, and restrooms too aggressively. That can reduce tenant convenience and increase the risk of vacancies. A balanced approach from the user's perspective is essential.
By putting all leasable space to work as rental space and incorporating meeting room rentals and shared spacesas well as other flexible contract formats, you can maximize revenue.
Frequently Asked Questions (FAQ)
Q. Is a higher rentable ratio always better?
Not necessarily. If common areas are too small, tenants may become dissatisfied, which can increase turnover.
Q. Where can you check the rentable ratio?
If it is not listed in the property information, you can calculate it yourself from the total floor area and leasable room area. For J-REIT holdings, it can be confirmed through public disclosure materials.
Q. Are there ways to improve the rentable ratio?
Yes. Options include renovations that convert part of the common area into rentable space, as well as effective use of non-revenue space, such as installing vending machines.
