Floor Area Ratio: Definition, Formula To Calculate, Example

Floor Area Ratio

Investopedia / Nez Riaz

What Is Floor Area Ratio?

The floor area ratio is the relationship between the total amount of usable floor area that a building has, or has been permitted to have, and the total area of the lot on which the building stands. A higher ratio likely would indicate a dense or urban construction. Local governments use the floor area ratio for zoning codes.

You may determine the ratio by dividing the total or gross floor area of the building by the gross area of the lot.

 Floor Area Ratio = Total Building Floor Area Gross Lot Area \begin{aligned} &\text{Floor Area Ratio} = \frac{ \text{Total Building Floor Area} }{ \text{Gross Lot Area} } \\ \end{aligned} Floor Area Ratio=Gross Lot AreaTotal Building Floor Area

What Does the Floor Area Ratio Tell You?

The floor area ratio accounts for the entire floor area of a building, not simply the building's footprint. Excluded from the square footage calculation are unoccupied areas such as basements, parking garages, stairs, and elevator shafts.

Buildings with different numbers of stories may have the same floor-area-ratio value. Every city has a limited capacity or limited space that can be utilized safely. Any use beyond this point puts undue stress on a city. This is sometimes known as the safe load factor.

The floor area ratio is variable because population dynamics, growth patterns, and construction activities vary and because the nature of the land or space where a building is placed varies. Industrial, residential, commercial, agricultural, and nonagricultural spaces have differing safe load factors, so they typically have differing floor area ratios. In the end, local governments establish regulations and restrictions that determine the floor area ratio.

The floor area ratio is a key determining factor for development in any country. A low floor area ratio is generally a deterrent to construction. Many industries, largely the real estate industry, seek hikes in the floor area ratio to open up space and land resources to developers. An increased floor area ratio allows a developer to complete more building projects, which inevitably leads to greater sales, decreased expenditures per project, and greater supply to meet demand.

Key Takeaways

  • The floor area ratio is the relationship of the total usable floor area of a building relative to the total area of the lot on which the building stands.
  • A higher ratio usually indicates a dense or highly urbanized area.
  • floor area ratios vary based on structure type, such as industrial, residential, commercial, or agricultural.

Example of How to Use the Floor Area Ratio

  • The floor area ratio of a 1,000-square-foot building with one story situated on a 4,000-square-foot lot would be 0.25x. A two-story building on the same lot, where each floor was 500 square feet, would have the same floor-area-ratio value.
  • Considered another way, a lot has a floor area ratio of 2.0x and the square footage is 1,000. In this scenario, a developer could construct a building that covers as much as 2,000 square feet. This could include a 1,000 square foot building with two stories. 
  • As a real-life example, consider an apartment building for sale in Charlotte, North Carolina. The asking price for the apartment complex is $3 million and spans 17,350 square feet. The entire lot is 1.81 acres or 78,843 square feet. The floor area ratio is 0.22x, or 17,350 divided by 78,843.

The Difference Between the Floor Area Ratio and Lot Coverage

Though the floor area ratio calculates the size of the building relative to the lot, the lot coverage takes into account the size of all buildings and structures. The lot coverage ratio includes structures such as garages, swimming pools, and sheds—including nonconforming buildings.

Limitations of Using the Floor Area Ratio

The impact that the floor area ratio has on land value cuts both ways. In some instances, an increased floor area ratio may make a property more valuable if, for example, an apartment complex can be built that allows for more spacious rentals or more tenants.

However, a developer who can build a larger apartment complex on one piece of land may decrease the value of an adjoining property with a high sale value bolstered by a view that is now obstructed.