Two Unit Mixes, One Building: A Worked Example of Net Area and Return

An illustrative comparison of 14 large apartments against 18 smaller ones in the same envelope, through efficiency, cost, parking and net income.

The unit mix argument is usually settled by opinion. It does not have to be: the same permitted envelope can be modelled both ways, and the numbers show where each option wins. This worked example takes one 2,250 square metre envelope, prices two mixes on illustrative assumptions, and follows them through efficiency, construction cost, parking and net income.

The situation

An owner has a permitted envelope of 2,250 square metres of gross floor area on a Saudi plot. The architect has produced two test-fit layouts: Option A with 14 apartments averaging 130 square metres of net area, and Option B with 18 apartments averaging 95 square metres. The owner wants to know which mix produces the better result, first on a sale exit and then if the building is held and let.

Assumptions (illustrative)

• Gross floor area in both options: 2,250 square metres.
• Option A: 14 units, 1,820 square metres net. Option B: 18 units, 1,710 square metres net.
• Illustrative sale rates: SAR 6,000 per square metre for Option A, SAR 6,300 for Option B.
• Illustrative construction rates on gross area: SAR 2,600 for Option A, SAR 2,750 for Option B.
• Parking provision available without extending the basement: 15 bays.
• Illustrative basement extension cost: SAR 3,200 per square metre, 30 square metres per additional bay.

Step 1: Compare layout efficiency

Option A: 1,820 divided by 2,250 equals 80.9% net to gross. Option B: 1,710 divided by 2,250 equals 76.0%.

Option B loses 110 square metres of saleable area to extra corridors, extra cores and more internal walls. That area is built and paid for but never sold, which is the hidden cost of subdividing the same envelope more finely.

Step 2: Value each mix on a sale exit

Option A: 1,820 times 6,000 equals SAR 10,920,000. Option B: 1,710 times 6,300 equals SAR 10,773,000.

The higher rate per square metre on the smaller units does not quite recover the area lost to circulation. On these assumptions the larger mix produces about SAR 147,000 more revenue from the same envelope, before any cost difference is considered.

Step 3: Apply the construction cost difference

Option A: 2,250 times 2,600 equals SAR 5,850,000. Option B: 2,250 times 2,750 equals SAR 6,187,500, which is SAR 337,500 more.

Four extra dwellings mean four more kitchens, four more bathroom sets, more doors, more meters and more service runs in the same floor area. The rate per square metre rises even though the building is no larger.

Step 4: Test the parking constraint

Option B needs 3 more bays than the 15 available. 3 bays at 30 square metres equals 90 square metres of extra basement, at SAR 3,200 per square metre equals SAR 288,000.

Parking provision is set per unit in many municipal conditions, so more units can force the most expensive space in the building to grow. This is the line owners most often discover after the layout has been approved internally.

Step 5: Compare the margin over construction

Option A: 10,920,000 minus 5,850,000 equals SAR 5,070,000. Option B: 10,773,000 minus 6,187,500 minus 288,000 equals SAR 4,297,500. Difference: SAR 772,500 in favour of Option A.

On these illustrative assumptions the larger units win clearly on a sale exit, and the gap is roughly 7% of revenue. The result is driven by three compounding effects: lost efficiency, higher build rate and forced parking.

Step 6: Cross-check a letting exit

Option A: 1,820 times SAR 480 annual rent per square metre equals 873,600, less 22% operating cost gives SAR 681,408 net. Option B: 1,710 times SAR 520 equals 889,200, less 28% operating cost gives SAR 640,224 net.

Smaller units gross more rent but cost more to run, because management, voids and turnover scale with the number of tenancies rather than with area. Net operating income still favours the larger mix here, though the gap narrows to about 6%.

What changes the answer

• The rate premium for smaller units, which in some catchments is far larger than the 5% assumed here.
• The parking requirement per unit, which can change the answer entirely if provision is set differently.
• The operating cost ratio, which depends on management arrangements and tenant turnover.
• The efficiency of each layout, since a well planned small-unit scheme can close much of the net to gross gap.
• Void periods, because a larger tenant pool for small units can offset the higher turnover.

What the numbers tell you

• Compare mixes on net area and net income, never on unit count or headline rate per square metre.
• A finer subdivision of the same envelope costs area, build rate and often parking at the same time.
• Parking provision can decide the unit mix before any commercial argument is reached.
• Operating cost ratios differ materially between many small tenancies and few large ones.
• Model both options on the same envelope and the same assumptions, then let the numbers choose.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira designs, builds and manages projects across Saudi Arabia for owners who are based abroad: land appraisal, feasibility, design, construction, handover and asset management under one accountable contract. Send us the plot or the brief and Domira will put the numbers in front of you before you commit.