Real Estate Glossary
Abbreviated Glossary of Real Estate Terms*
Availability Rate: The ratio of available space to total rentable space, calculated by dividing the total available square feet by the total rentable square feet.
Available Space: The total amount of space that is currently being marketed as available for lease in a given time period. It includes any space that is available, regardless of whether the space is vacant, occupied, available for sublease, or available at a future date.
Build-to-Suit: A term describing a particular property, developed specifically for a certain tenant to occupy, with structural features, systems, or improvement work designed specifically for the needs of that tenant. A build-to-suit can be leased or owned by the tenant. In a leased build-to-suit, a tenant will usually have a long term lease on the space.
Building Classes: Office buildings are typically classified as Trophy, Class A, Class B and Class C. These general subjective classifications are usually bestowed by the owner of the property, rather than by an objective independent arbiter of office building quality. As a result, many properties designated as “Class A” buildings are nothing of the sort. Fortunately, the professionals of McBride Real Estate Services have our own standard of building evaluations from the tenant perspective.
Cap Rate: Short for capitalization rate. The Cap Rate is a calculation that reflects the relationship between one year’s net operating income (NOI) and the current market value of a property. The Cap Rate is calculated by dividing the annual NOI by the sales price (or asking sales price).
Central Business District (CBD): Typically the CBD of a market is the heart of the downtown employment area. The CBD of the Washington, DC Metropolitan Area is the core business area within the District of Columbia (circa 1975), generally defined as the area bounded by 23rd Street, NW on the West, Massachusetts Avenue, NW on the North, 15th Street, NW on the East and Pennsylvania Avenue, NW on the South.
Class A: Buildings that generally qualify as extremely desirable investment-grade properties and command the highest rents or sale prices compared to older buildings in the same market. Such buildings are well located and provide efficient tenant layouts as well as high quality, and in some buildings, one-of-a-kind floor plans. They can be an architectural or historical landmark designed by prominent architects. These buildings contain a modem mechanical system, and have above-average maintenance and management as well as the best quality materials and workmanship in their trim and interior fittings. They are generally the most attractive and eagerly sought by investors and tenants alike, who are willing to pay a premium for quality. Typical features of Class A buildings in the District of Columbia include: VAV HVAC system, parking, a fitness center and roof deck.
Class B: Buildings that generally qualify as a more speculative investment, and as such, command lower rents or sale prices compared to Class A properties. Such buildings offer utilitarian space without special attractions, and have ordinary design, if new or fairly new; good to excellent design if an older non-landmark building. These buildings typically have average to good maintenance, management and tenants. They are less appealing to tenants than Class A properties, and may be deficient in a number of respects including floor plans, condition and facilities. They lack prestige and must depend chiefly on a lower price to ttract tenants and investors.
Class C: Buildings that generally qualify as no-frills, older buildings that offer basic space and command lower rents or sale prices compared to other buildings in the same market. Such buildings typically have below-average maintenance and management, and could have mixed or low tenant prestige, inferior elevators, and/or mechanical/electrical systems. These buildings lack prestige and must depend chiefly on a lower price to attract tenants and investors.
Construction Starts: Buildings that began construction during a specific period of time. (See also: Deliveries)
Contiguous Blocks of Space: Space within a building that is, or is able to be joined together into a single contiguous space.
Deliveries: Buildings that complete construction during a specified period of time. In order for space to be considered delivered, a certificate of occupancy must have been issued for the property.
Delivery Date: The date a building completes construction and receives a certificate of occupancy.
Direct Space: Space that is being offered for lease directly from the landlord or owner of a building, as opposed to spaa- being offered in a building by another tenant (or broker of a tenant) trying to sublet a space that has already been leased.
Effective Rental Rate: The initial full service rental rate, less the average annual value of total concessions (rental abatement and improvement allowance). For example, $50 of total concessions on a 10 year lease reduce the effective rental rate by $5/sq. ft. ($50÷10=$5)
Existing Inventory: The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in buildings that are either planned, under construction or under renovation.
Flex Building: A type of building designed to lie versatile, which may be used in combination with office (corporate headquarters), research and development, quasi-retail sales, and including but not limited to industrial, warehouse, and distribution uses. A typical flex building will be one or two stories with at least half of the rentable area being used as office space, have ceiling heights of 16 feet or less, and have some type of drive-in door, even though the door may be glassed in or sealed off.
Full Service Rental Rate: Rental rates that include all operating expenses such as utilities, electricity, janitorial services, taxes and insurance. For example, if annual building operating expenses and real estate taxes total $20 per sq. ft., a $30 triple net rent would equivalent to a $50 per sq. ft. full service rental rate ($30 + $20 = $50).
Gross Absorption: The total change in occupied space over a given period of rime, counting space that is occupied but not space that is vacated by tenants. Gross absorption differs from leasing Activity, which is the sum of all space leased over a certain period of time. Unless otherwise noted Gross Absorption includes direct and sublease space.
Growth in Inventory: The change in size of the existing square footage in a given area over a given period of time, generally due to the construction of new buildings.
Industrial Building: A type of building adapted for such uses as the assemblage, processing, and/or manufacturing of products from raw materials or fabricated parts. Additional uses include warehousing, distribution, and maintenance facilities. The primary purpose of the space is for storing, producing, assembling, or distributing product.
IRR: Internal Rate of Return. The internal rate of return is the interest rate received for an investment consisting of payments (equity, closing costs, etc.) and income that occur at regular periods (usually concluding with a building sale or refinancing).
Landlord Rep: (Landlord Representative). In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the owner/landlord is referred to as the Landlord Rep.
Leased Space: All the space that has a financial lease obligation. It includes all leased space, regardless of whether the space is currently occupied by a tenant. Leased space also includes space being offered for sublease.
Leasing Activity: The volume of square footage that is committed to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity in planned, under construction, or under renovation buildings.
Market: Geographic boundaries that serve to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are building-type specific, and are non-overlapping contiguous geographic designations having a cumulative sum that matches the boundaries of the entire Region (See also: Region). Markets can lie further subdivided into Submarkets. (See also: Submarkets)
Multi-Tenant: Buildings that house more than one tenant at a given time. Usually, multi-tenant buildings were designed and built to accommodate many different floor plans and designs far different tenant needs. (See also: Tenancy).
NCF: Net Cash Flow. NOI, less debt service, leasing & management expenses tenant improvements and capital reserves. NCF is not as commonly used as NOI, but presents a more realistic return of income generated by a property for investors.
Net Absorption: The net change in occupied space over a given period of time. For example, if an organization vacates 10,000 square feet of leased space and moves into 12,000 square feet of space, the result is 2,000 square feet of positive net absorption. If an organization vacates 10,000 square feet and moves into 8,000 sq. the result is 2,000 square feet of negative net absorption. Unless otherwise noted Net Absorption includes direct and sublease space.
Net Rental Rate: A rental rate that excludes certain expenses that a tenant could incur in occupying office space. Such expenses are expected to be paid directly by the tenant and may include janitorial costs, electricity, utilities, taxes, insurance and other related costs.
New Space: Sometimes called first generation space, refers to space tint has never been occupied and/or leased by a tenant.
NOI: Short for net operating income. The net rental income generated by a property, less real estate taxes and operating expenses. NOI does not include deductions for debt service, leasing expenses or tenant improvements.
Planned/Proposed: The status of a building that has been announced for future development but not yet started construction.
Phantom Space – Vacancy rates don’t tell the full picture. Many tenants, especially law firms, will carry excess space. Although they have no plans to use their extra space with the foreseeable future, they will simply bank the vacant space for their future use rather than market it for sublease.
Preleased Space: The amount of space in a building that has been leased prior to its construction completion date, or certificate of occupancy date.
Price/SF: Calculated by dividing the price of a building (cither sales price or asking sales price) by the Rentable Building Area (RBA).
Property Manager The company and/or person responsible for the day-to-day operations of a building, such as cleaning, trash removal, etc. The property manager also makes sure that the various systems within the building, such as die elevators, HVAC, and electrical systems, are functioning properly.
Quoted Rental Rate: The asking rate per square foot for a particular building or unit of space by a broker or property owner. Quoted rental rates may differ from the actual rates paid by tenants following die negotiation of all terms and conditions in a specific lease.
Region: Core areas containing a large population nucleus that together with adjacent communities have a high degree of economic and social integration. Regions are further divided into market areas, called Markets. (See also: Markets)
Relet Space: Sometimes called second generation or direct space, refers to existing space that has previously been occupied by another tenant.
Rentable Building Area (RBA): The total square footage of a building that can lie occupied by, or assigned to a tenant for the purpose of determining a tenant’s rental obligation. Generally RBA includes percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets.
ROI: Return on Investment. Calculated as the length of time an investment “pays for itself” through savings, income or other returns.
Sales Volume: The sum of sales prices for a given group of buildings in a given time period.
Suburban Markets: The Submarkets outside the District of Columbia, especially those outside the Beltway.
Submarket: The commonly recognized local areas within the Washington, DC Metropolitan Area. Submarkets are usually defined by natural geographic boundaries, proximity to certain Metro stations or neighborhoods. Due to the significant growth of the Metro Area office market, many submarkets run into each other and have become virtually indistinguishable from all but the hardened real estate professionals. For example, the once separated Arlington, VA neighborhoods of Rosslyn, Courthouse, Clarendon and Ballston have become so intertwined that they are commonly referred to as the R-B Corridor. Submarkets within the District of Columbia include: Georgetown, West End, CBD, Midtown, East End, Capitol Hill, Penn Quarter, Southwest, Southeast/Navy Yard, and Uptown.
Trophy: A type of Class A building defined as a brand new or state of the art property developed to a first class level of quality with respect to all building systems, features and amenities. For example, standard features in 21st Century Washington, DC Trophy buildings include: LEED Green or better certification, fitness center, roof deck and finished ceiling heights of at least 9’.
Vacancy Rate: A measurement expressed as a percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally is not included in vacancy calculations.
Weighted Average Rental Rate: Rental rates that are calculated by factoring in, or weighting, the square footage associated with each particular rental rate. This has the effect of causing rental rates on larger spaces to affect the average more than that of smaller spaces. The weighted average rental rate is calculated by taking the ratio of the square footage associated with the rental rate on each individual available space to the square footage associated with rental rates on all available spaces, multiplying the rental rate by that ratio, and then adding together all the resulting numbers. Unless specifically specified otherwise, rental rate averages include both Direct and Sublet available spaces.
*Portions of this content have been provided by the CoStar Group.
