Floor Area Ratio - FAR

Our commercial development firm, New Buildings 4U, has its eye on a sweet piece of land near the river downtown. It’s the perfect location for a humongous twenty-story office building with a few restaurants facing the water and a helipad on the roof, and we want to be the ones to put it there.

But the city has other ideas. This plot of land is one of the last open areas along the river, and in an effort to preserve some of that openness, they’ve declared that any development plan for that land must have a FAR at or below .25.

FAR stands for floor area ratio, and it tells us how much usable square footage a structure (or proposed structure) has (or can have) in relation to the structure’s lot size. A FAR of .25 means that the total square footage of whatever we build can’t be more than 25% of the size of the lot it sits on. In math terms, it looks like this:

FAR = Total building floor area
Gross lot area

And it doesn’t matter whether our building is one story or twenty stories, like our original plan. No matter what we design, its usable square footage has to stay at or below 25% of the square footage of the land, to the windows and to the walls. So if the lot by the river is 20,000 square feet, then the total usable square footage of our structure cannot be more than 5,000 square feet. That’s like the size of two or three suburban single-family homes. In the land of commercial office buildings, that’s pretty dang small, even when we take into account that the FAR doesn’t include areas like elevators, parking garages, and stairwells—areas that aren’t usable as office or business space.

So what does this mean for those of us who maybe aren’t real estate developers? Well, if we’re looking to invest in real estate development, or really in any business trying to take root in a new area, we should look at the region or city’s FAR information. Generally speaking, a higher FAR indicates a denser population, like we see in cities. It might indicate a greater profit potential…or it might not. Because the FAR doesn’t tell us about things like average area income, local tax laws, environmental regulations, etc.—things that might have a much greater impact on our investment than the FAR.