Canadian commercial real estate is a different beast. Prices are typically tied to square footage and, quite often, commercial spaces come with a variety of restrictions and liabilities (such as the need to retrofit the space, complete lease-hold remodels every few years or limit the type of business in the chosen space). Despite all the differences, commercial real estate does share a few facets with residential real estate: It’s in demand and there are no solid standards when it comes to reporting square footage.
Demand isn’t a big problem — unless you’re the one trying to get into a space. A lack of standards when it comes to measuring and reporting square footage is a problem. A big problem.
Problems in commercial real estate measurements
In Canada, there are currently no official measurement standards when reporting square footage for commercial real estate — a fact that’s also true for residential real estate, however, there is a much stronger push on the commercial side to adopt international standards when it comes to building measurements.
Standardized measurement practices are also essential as it enables developers to communicate their plans clearly, allows businesses to thoroughly plan out their operations and provides property managers the ability to compare the profitability of differently sized properties.
At present, most builders and developers currently use the Building Owners and Managers Association (BOMA) standards, a guide first published in 1915 (but most recently updated in 2017). According to William B. Tracy, former Vice Chair of the Standard Method of Floor Measurement Committee of BOMA International, a measurement standard is critical to commercial real estate since square footage is the tool used to establish rent owed and common area expenses.
However, there are no obligations to follow the BOMA standards. As a result, commercial lease-holders and developers often run into difficulties — sometimes litigious difficulties — when dealing with reported measurements. The most egregious problems occur when building managers vary measurement methods from floor to floor in the same building.
As a result, many organizations will actually advise lease-holders to measure their space. For example, Canada Business Ontario has a campaign to warn commercial tenants to measure out how much of their space is genuinely usable — called “usable area” as opposed to “rentable” area. This is because the “usable” area is the measurement used to assess cost per square foot as well as common area expenses. Natalka Falcomer, lawyer and licensed real estate sales agent, has seen many businesses fail because the tenant didn’t end up with the usable square footage they needed, partly because they didn’t understand the distinction between rentable and usable area and partly because the measurements were inaccurate.
These problems shouldn’t arise. In commercial real estate “people have to price things based on contract value, and they can’t exceed those or there are penalties,” explains Andy Thomson, a green architect with commercial and residential experience. As a result, new-builds in commercial real estate and, in fact, all commercial real estate tends to be more stable in price than residential new builds. Yet, a lack of consistent standards threatens a building owner’s ability to attract global investment. This problem is now prompting a push for a national solution.
The international standards effort
In North America, commercial space owners and operators often add in lobbies and other shared space as part of a tenant’s square footage. In commercial real estate this is known as the “gross up” and while it’s common practice in commercial leases across Canada and America it’s becoming a barrier to international investment.
To rectify this situation there is a movement to adopt one international standard for the measurement and reporting of commercial space. This movement is being led by the International Property Measurement Standards (IPMS) Coalition, which is a group of several key property associations, including Canadian Real Estate Association (CREA), BOMA Toronto and the Real Property Association of Canada (REALpac). At present, members of the IPMS require their partners to use the IMPS standards in all commercial real estate transactions across Canada. (The IMPS standards that got their start in Europe.)
While there are no legal requirements to enforce builders and commercial space owners to standardize their square footage reporting and use, there is a stronger push to create one international standard, including for Canadian commercial real estate. A big reason for this push is that global business has grown exponentially over the last few decades, meaning there is now a greater need to create an apples-to-apples approach to evaluating commercial real estate space. As the Chief Executive Officer of REALpac, Michael Brooks, told the Real Estate News Exchange the benefits of “global standards are important to enable the flow of investment capital between countries without erecting a local custom wall every time a border is crossed.”