Commercial real estate and real estate are growing industries in 2022. Commercial real estate is expected to grow further at a CAGR of approx. 13% During forecast of2022-2027. There was a downfall post-pandemic in the real estate industry due to work-from-home guidelines. But now, the industry is again booming.
Commercial real estate refers to properties solely used for commercial purposes and as offices. Tenants rent commercial real estate to perform income-generating operations. According to BOMA (Building Owners and managers association), a Commercial building combines Rentable space and usable space. BOMA standards of measurement act as guidelines for real estate practitioners.
This article is about commercial real estate terms commonly used – Load Factor vs Loss Factor. When renting an office or other commercial space, one must know these terms.
Rentable Square Foot and Usable Square Foot
Before going further, I want to define two specific terms: Rentable square foot and usable square foot.
Rentable square foot refers to that area or space that a tenant lease from the landlord. RSF includes the area or space within walls and the area that a tenant shares with other tenants like elevators, stairs, walls, lobby, etc.
A usable square foot can be referred to as that area or space that a tenant uses for performing their activities. Usable space can be calculated based on two things if a tenant leases only a part of the floor or if a tenant leases an entire floor, including elevators, maintenance room, etc., apart from the office area. On the other hand, Part-floor tenants simply compute their usable square feet as the area within the walls of their leased apartments.
Load Factor Vs Loss Factor
Rentable square feet and usable square feet are used to calculate the load factor, also known as the loss factor or core factor. Load factor and loss factor are both referred to as the amount of space you pay for but don’t use as part of your commercial real estate lease. Load factor and loss factors are two different ways of calculating that extra space.
The load factor tells you how much bigger the rentable area is than the usable area.
- Load Factor Formula: (Rentable area minus usable area divided by usable area).
The loss factor tells you the percentage of rentable areas you can’t use.
- Loss Factor Formula: (Rentable area minus usable area divided by rentable area).
For example, ABC Ltd. wants space for its clothing business. The landlord tells them that the rentable area is 15000 square feet and the usable area is 10000 square feet. What is the load factor and loss factor?
Load factor = 15000 – 10000 / 10000
= 5000 / 10000 = 50%
Loss Factor = 15000 – 10000 / 15000
= 5000 / 15000 = 33%
In most circumstances, the above calculations can be used. However, there are some exceptions. In the case of the US, two authorities held for calculating these factors, the Business Owners and Managers Association, BOMA, and the Real estate board of New York, REBNY.
Boma Vs Rebny
The most notable distinction between the two is that BOMA measures commercial real estate space from the center of the window, whereas REBNY measures space from the window’s exterior. REBNY standards of measurements are more aggressive than BOMA standards of measurements. The Gross Building Area (GBA) exceeds the rentable area in BOMA. The entire floor area of a building measured from the outer surface of exterior walls is known as GBA. The contrary is true in REBNY: the rentable area is usually greater.
Things To Remember
Landlords frequently change the load and loss factors based on their interests when they get a tenant. The only way to protect yourself from this kind of behaviour is to remember two things:
- Request for a space and building measurement according to BOMA standards
- Deal with the experts who work closely with you to save your interest in this kind of practice.
I hope this article brings you a better understanding.