What is Building Efficiency Ratio in Real Estate?

Building Efficiency Ratio, Efficiency Factor, and Core Factor for Commercial Properties

Building efficiency ratio, sometimes called efficiency factor or core factor, is a real estate metric calculated by dividing the net rentable square footage of a building by its usable square footage. Net rentable square footage includes lobbies, restrooms, corridors, and other areas, and it can be calculated for an entire building or a single floor. Usable square footage, in contrast, is the area set aside for a particular tenant. 

The building efficiency ratio represents the share of net rentable square feet of a building that is occupied by the common areas and other un-rentable space. sometimes, the efficiency factor is referred to as the net-to-gross ratio. For office or industrial buildings, tenants may be charged common area maintenance (CAM) fees or may be charged on a PSF (per square feet) for their relative, or pro-rate share of the common areas. In multifamily, CAM charges can occur but are much rarer. 

For example, if an apartment building contained 100,000 square feet of space, 10,000 of which is taken up by elevators and staircases, 10,000 by a parking garage, and another 2,500 by public restrooms and a leasing office, there would be 77,500 square feet left of usable square footage. The building would therefore have a building efficiency ratio of 0.75. 

What is a Good Building Efficiency Ratio? 

Office and industrial buildings generally have a higher building efficiency ratio than multifamily developments, generally between 80-85%. In contrast, apartments are somewhat less efficient, with an average building efficiency ratio of 70-75%. However, many cost-conscious multifamily developers are catching up. This can be done by taking steps such as standardizing wall thickness and eliminating unnecessary entrances and exits, such as building breezeways, in order to increase efficiency ratios, and ultimately, increase profits.