How to Calculate Pre-Leased Percentage

The pre-leased percentage is a key metric in commercial real estate, particularly in the development and investment sectors. It quantifies the portion of a new or redeveloped property that has secured lease agreements before or during its construction phase. This figure offers a snapshot of market demand and the potential for future rental income, providing valuable insights for various stakeholders. Understanding this percentage is fundamental for assessing the preliminary success and financial prospects of a commercial property.

Identifying the Key Components for Calculation

Calculating the pre-leased percentage relies on two distinct numerical inputs: pre-leased space and total leasable area. Pre-leased space refers to the square footage for which legally binding lease agreements have been executed. This includes space where a tenant has committed to occupy, even if the building is still under construction or the tenant has not yet moved in. These agreements, often called pre-lease agreements, formally outline terms like commencement date, lease term, and rent amount.

Total leasable area represents the entire square footage within a property or development that is available or planned for leasing to tenants. This measurement typically excludes spaces not intended for tenant occupancy, such as common areas, structural elements like columns or walls, and mechanical rooms. Distinguishing between spaces solely for tenant use and those shared with others is important for accurate measurement.

The Pre-Leased Percentage Formula

The pre-leased percentage is determined by a straightforward mathematical formula. It is calculated by dividing the pre-leased space by the total leasable area and then multiplying the result by 100 to express it as a percentage. The formula is: (Pre-Leased Space / Total Leasable Area) \ 100.

For example, consider a new office building with a total leasable area of 100,000 square feet. If 35,000 square feet of this space has already been secured through signed lease agreements, the calculation would be (35,000 / 100,000) \ 100. This yields a pre-leased percentage of 35%, providing a clear measure of early leasing success.

Contextualizing the Pre-Leased Percentage

The pre-leased percentage serves as a powerful indicator for various participants in the commercial real estate market. For developers, a high pre-leased percentage can signal strong market demand for the property type and location. This early commitment from tenants provides financial security, often influencing the developer’s ability to secure construction financing from lenders, who view projects with higher pre-leasing rates as less risky.

Investors also scrutinize this percentage when evaluating potential acquisitions, especially for properties under development. A substantial pre-leased figure suggests reduced vacancy risk and a more predictable income stream once the property is operational, translating to an immediate return on investment. For marketing purposes, a high pre-leased percentage helps attract additional tenants by demonstrating confidence in the project and indicating that desirable spaces are being quickly claimed.

Ensuring Accuracy in Component Measurement

Accurate calculation of the pre-leased percentage depends heavily on precise measurement of its two components. When defining “pre-leased space,” it is important to verify that lease agreements are fully executed and legally binding. This includes confirming clear lease commencement dates and any conditions precedent that must be met before occupancy. Distinguishing between a signed letter of intent and a formal lease agreement is also important, as only the latter typically represents a firm commitment.

For “total leasable area,” clarity is needed regarding the specific measurement standard used. Commercial real estate often differentiates between Gross Leasable Area (GLA) and Net Leasable Area (NLA). GLA generally includes all areas designed for tenant occupancy, including a pro-rata share of common areas, while NLA refers only to the space exclusively used by the tenant within their leased unit. The Building Owners and Managers Association (BOMA) provides standardized methods for measuring these areas, which helps ensure consistency.