How to Calculate the Land to Building Ratio

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A structure occupies a certain portion or percentage of the land parcel on which it sits. This percentage or ratio of the size of the building to the land on which it resides is called the "land to building ratio."

To arrive at the land to building ratio, just divide the square footage of the land parcel by the square footage of the building:

188,000 land sq ft / 43,500 building sq ft = 4.32

This is a 4.32:1 land to building ratio.

The land to building ratio isn't reported in all appraisals. In fact, it is rarely seen in residential appraisals. There are, however, many municipal codes and property restrictions that will limit the ratio. In other words, there may be a desire to keep the size of homes to a certain percentage of the available lot space.

The use of the land to building ratio is much more prevalent in commercial and industrial applications. There are usually stringent requirements in building codes for the amount of parking for certain size structures, as well as setback and green area considerations. A facility with an 11 to 1 land to building ratio may be under-utilizing the land, resulting in some added value for additional space. Another, with a ratio of 2.5 to 1 may be at maximum capacity or in violation of current codes due to grandfather clauses.

Commercial and Industrial Land and Structure Considerations

By far, the greatest number of considerations when working with commercial, industrial and institutional real estate is involved with municipal and other regulations. With industrial, there could be EPA issues, and there may be hazardous materials to think about.

The Retail Shopping Center or Mall

You won't find a shopping mall or strip center in the middle of thousands of acres of farmland.  Population demographics are the first consideration in siting retail commercial buildings.  There must be enough people to support the shops and businesses, or there will soon be a shell building sitting empty.  Traffic patterns are also important.  In suburban situations, it's very important to have easy access to cars and lots of convenient parking.  In an urban setting, sometimes it's enough to provide underground parking and rely also on walking traffic.

Ratios of the tenant retail lease spaces and the overall theme of the center are important as well.  There is often an "anchor tenant," the largest retailer that will draw the most traffic.  Then there will be others who have related but not necessarily competitive products and services.  A major mall may have 20 clothing stores, but they each believe they have their niche customers and will do well.  The anchor tenant, in this case, could be Macy's.

Office Buildings

These vary by the type of offices they will house.  A building catering to accountants, attorneys and consultants have certain space use requirements, and there may be one or more shared conference rooms for larger meetings, and possibly even a shared receptionist to route calls and visitors.

A medical office or dental office complex will have very different space requirements, especially when it comes to electric power and other special concerns related to the equipment used.  Medical office buildings may need more elevators or easier access situations for the aged or ill.  

Warehousing & Specialty

Warehouses require lots of space, and in many cases large truck loading docks.  However, they generally don't need much more in the way of parking spaces.  Warehouses will usually have one or a couple of areas set up for offices, but they will not have much in the way of amenities, just space, utilities and phone service.

Specialty refers to auto repair shops, oil change businesses, car and RV dealerships, and others.  They each have different needs as far as space and parking.  Auto repair and oil change businesses have special needs for disposal of waste oil and other chemicals.  

Every one of these types will have some concern for the land to building ratio, and now you know how to calculate it.