How is building or lettable area calculated?

The lettable area is a measurement of the floor space and/or land area of a property and is used to assist in rental calculations and property market assessments. There are three generally accepted methods of measuring building areas: Gross Lettable Area (GLA) is a measurement of the total occupiable floor space taken from the exterior wall surfaces and/or the mid-line of any shared walls and includes areas such as mezzanine floors. Any land that is for the predominant or exclusive use of the occupant is also usually taken into account in this calculation. This method is used for measuring commercial and industrial properties such as warehouses, showrooms and freestanding supermarkets. Gross Lettable Area Retail (GLAR) is a measurement of the total occupiable floor space taken from the inside surfaces of the exterior walls and/or the mid-line of any shared walls and includes areas such as basements, and mezzanines which are exclusively for the use of the occupant. This method is used for calculating retail tenancy areas in shopping centres, commercial buildings, strip shops, free-standing shops, semi-detached or terrace-typed shops in suburban streets. Net Lettable Area (NLA) is a measurement of the total occupiable floor space taken from the inside surfaces of the exterior walls and/or the mid-line of any shared walls and excludes areas such as common stair wells, toilets, lift lobbies and vertical service ducts. This method is most commonly used to measure multistorey, multi tenancy buildings such as office buildings.


How are commercial rents calculated?

Commercial rents are normally calculated on the basis of the dollar value per square metre of occupiable space; whether that is building area or land area, or a combination of the two.

Rental rates vary depending on circumstances. Factors affecting rental rates include:

  • location;
  • the type of property;
  • building area;
  • land area;
  • age;
  • construction type;
  • zoning; and
  • the quality of improvements.


How are sale assessments of industrial and commercial buildings calculated?

In the same way that we assess potential rental rates, we consider factors such as size, construction, zoning etc. and then use one of several conventions to calculate the potential sale price of a property. These may include a Replacement Cost analysis, a Comparable Sales analysis or a Capitalisation of Net Return analysis (in the case of a leased property).

A method still used by a number of agents is the ‘back of a business card’ method, that is, they scribble down the first number that pops into their minds on the back of business card and say “call me if you want to sell”.

Whilst this is a tried and true approach for some, we have found that our clients feel more comfortable and reassured with a more well considered approach.


Factory versus warehouse - which is which?

There are distinct differences and they will affect your use of a property, so it’s important to understand what those differences are.

The key differences are the property zoning and the Permitted Use, that is, the permit that was issued by the local council prior to construction will determine how the property can be used within the parameters of the zoning. Although the answer is not entirely black and white, a warehouse is designated for storage and needs high internal clearance for racking - the usual minimum internal clearance is 6 metres - as well as high clearance roller doors to allow access for heavy vehicles carrying containers. A factory is generally designed for manufacturing purposes and doesn't usually require high clearance but this depends on the particular industry.

Before making a final property selection, we recommend that you check with the local council if you have any doubts about your intended use.


How could zoning or planning restrictions affect my intended use?

The zoning of a property is a government classification that generally defines what sorts of activities may be undertaken in a particular area. For most types of manufacturing and/or warehousing activities, the common zones in use in Victoria are Industrial 1, Industrial 3 and Commercial 2. There are other special use zones also, as well as those relating to mixed use, retail, and commercial with residential and, at the other end of the spectrum, heavy chemical or petrochemical use.

Planning Schemes control land use and development and contain state and local planning policies, zones and overlays and other provisions that affect how land can be used and developed. If your intended use is not permitted under the particular zoning and planning regulations, the local authority can require you to stop operating, therefore, it is prudent to ask questions in relation to this matter and make enquiries before making a commitment to purchase or lease a particular property.

Even where the zoning is potentially suitable for your use a restrictive covenant could impede your plans. A restrictive covenant is a private written agreement between landowners to restrict the use or development of land for the benefit of other landowners and is registered on the Certificate of Title. Restrictive covenants are most commonly applied when a developer subdivides land for sale and wishes to apply some restrictions on the use and development of the lots to benefit or protect other land within the development. Examples are a restriction on automotive repairs or panel beating on land that is zoned Industrial 1, or a restriction on the type of building material that may be used when constructing a house or commercial building.

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