The Myth of Below-Grade Space in Total Leasable Area

When it comes to real estate, square footage matters—a lot. Whether you're a landlord, tenant, investor, or appraiser, understanding how space is measured can significantly impact leasing agreements and property values. However, one common myth persists in commercial and residential real estate: "Below-grade space is included in total leasable area."

What Is Below-Grade Space?

Below-grade space refers to any portion of a building that is partially or fully below ground level. This includes basements, lower levels, and walkout basements, even if they have windows or exterior access.

While below-grade areas can certainly serve functional purposes—such as offices, storage, or even retail—they are not always included in a property's total leasable or rentable square footage.

Why Below-Grade Space Is NOT Typically Counted in Leasable Area

• Industry Standards Exclude It

Appraisal and leasing professionals typically follow guidelines set by organizations like BOMA (Building Owners and Managers Association) and ANSI (American National Standards Institute). These standards usually exclude below-grade space from gross leasable area unless it meets specific usability criteria.

• Perceived Value Differences

Even when finished, below-grade space is often valued lower than above-grade space because of limited natural light, potential moisture or structural concerns, lower ceiling height, and perceived desirability by tenants.

Because of this, appraisers usually adjust valuations accordingly rather than including these areas at the same rate as above-grade spaces.

• Lease Agreement Clarity

In commercial real estate, total rentable square footage directly affects lease pricing. If a landlord incorrectly includes below-grade space in the total leasable area, it can lead to mispricing, disputes, and legal issues. Tenants often negotiate based on what is truly "usable" space.

When Can Below-Grade Space Be Included?

There are exceptions where below-grade space can be counted toward total leasable area:

✔ Walkout basements with direct exterior access and significant usability (e.g., retail or office space with full windows).

✔ Fully finished lower levels in commercial properties designed for continuous tenant use (e.g., underground shopping centers, fitness studios).

✔ Buildings where below-grade space is the primary usable space, such as in urban environments where lower levels function as storefronts.

Final Thoughts

If you're leasing, selling, or appraising a property, it's critical to verify how below-grade space is accounted for. Relying on myths instead of industry standards can lead to overestimating leasable area, mispricing, and potential legal complications.