Floor Area Ratio is a concept with implications that impact zoning and Commercial Real Estate Investments. Keep reading to learn what FAR is, how to calculate it, and why it matters.
What Is Floor Area Ratio (FAR)?
The term Floor Area Ratio (or FAR for short) refers to the relationship between the total square footage of a building and the total area of the lot on which it is built.
Calculating the Floor Area Ratio of a building is a straightforward process: all you have to do is divide the total square footage of a building (including all floors) by the gross lot area. FAR is expressed as a percentage or ratio.
Here are some examples to help illustrate the point:
- A two-story, 40,000-square-foot building (each floor is 20,000 square feet) built on a 20,000-square-foot lot has a FAR of 2.0x
- A 20,000-square-foot building built on a 30,000-square-foot lot has a FAR of 0.6x
Importance of FAR
As you can see from the examples above, at its most basic, a high FAR means that a lot of floors can be built on a single lot.
Since you are doing a simple division, the larger the dividend (in this case, the total square footage of a building) in relation to the divisor (gross lot area), the higher the FAR.
Cities use FAR in their zoning plans to determine how many square feet can be developed on a property.
A high FAR may be attractive to investors looking to purchase a lot, although owners of surrounding buildings may see the price of their properties take a hit, since a tall building could obstruct the view from their properties.
In other words, the impact and importance of a high (or low) FAR is relative and can vary depending on which side of the equation you’re on.
Disclaimer: This material is for general information and educational purposes only. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
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