The Rising Cost of Space: How Office Gross-to-Net Ratios Are Shifting

Modern office towers are no longer planned solely around the physical footprint where employees sit. Today, they feature expansive lobbies, restaurants, fitness centers, lounges, co-working spaces, and other shared amenities designed to make buildings more appealing to corporate tenants. However, these services come at a tangible cost: they consume increasingly larger shares of floor space.

While the gross-to-net ratio in office buildings stood at roughly 15% during the 1990s, it now hovers between 25% and 27%. This means the gap between the space for which a tenant pays rent and the actual usable area at their disposal has widened significantly.

This shift occurs at a time when office supply is high and competition for tenants is intensifying, with developers striving to differentiate their properties through quality, services, and shared facilities. Consequently, the gross-to-net question has become central to building design and tenant lease negotiations alike.

The Calculation: Paying for Unused Space

"The gross-to-net ratio expresses the relationship between the total gross area for which a tenant pays rent and the net area they can actually use," explains CPA Guy Amosi, CEO of Avison Young Israel. "In English, it is called the 'Core Factor,' and it essentially reflects the economic efficiency of the space." Amosi explains that the discrepancy mostly stems from shared areas proportionally allocated to each tenant, such as main lobbies, floor lobbies, restrooms, stairwells, elevator shafts, communication shafts, machine rooms, and rooftop cooling systems.

"These areas are distributed proportionally among all tenants in the building, and the relative share is 'loaded' or attached to each tenant to form the gross payable area. The basic formula is Core Factor equals gross area divided by net area. The higher the factor, which typically ranges between 1.12 and 1.35 in Israel, the more space is 'wasted' on common areas, and the tenant pays for less actual usable space," Amosi adds.

The Shift: From Floor Plate Size to Space Character

Architect Adi Rosenbenko of Rosenbenko Architects points to several shifts in office tower design over the years that have influenced the gross-to-net ratio. According to Rosenbenko, the variety of workspaces within a floor plate has grown considerably since the COVID-19 pandemic. While planning once focused heavily on efficient partitioning for individual workstations, modern offices now require boardrooms, shared working spaces, dining areas, and collaborative lounges.

Another primary driver affecting the ratio is building height. The taller the tower, the more elevators, stairwells, and fire suppression systems are required, causing the core to occupy a larger share of space at the expense of office areas. "In very high buildings, typically in denser areas like Tel Aviv and the Gush Dan region, the gross-to-net ratio is less favorable than in lower buildings," Rosenbenko notes.

The Competition: Shared Spaces Boost Appeal

Attorney Alon Wallner, a partner in the real estate department at Barnea Jaffa Land, explains that recent years have brought a much greater focus on value creation. While expanding shared spaces increases the gross-to-net ratio, it simultaneously enhances a building's attractiveness and the value it offers to tenants.

In submarkets outside Tel Aviv, where tenant competition is fierce, the gross-to-net ratio serves as more than just a measure of planning efficiency; it is a vital tool for generating demand. Investments in communal spaces, fitness rooms, and dining options can drive up the ratio while making the property far more competitive.