Load factor
Also called Common area factor, Add-on factor, Rentable to usable ratio.
The load factor is the percentage by which a tenant's usable area is grossed up to a rentable area for rent purposes, covering its share of lobbies, corridors, restrooms and mechanical space. Rent is charged on the rentable figure, so two buildings quoting the same rate per foot are not quoting the same rent.
How it works
Usable area is the space inside the tenant's premises. Rentable area adds a pro rata share of the floor's common area and of the building's, so a tenant occupying 22,500 usable square feet in a building with an 11 percent load pays rent on 25,000. The load is not a fee and it is not padding, it is how the cost of space every tenant uses gets allocated. It is also a function of how the building was designed, which is why an efficient floor plate is worth money.
Typical loads run about 10 to 15 percent on a full floor and higher on a multi-tenant floor, which needs corridors and shared restrooms a single tenant does not. Above roughly 20 percent the number deserves a question: it may be a tall lobby, a large amenity block, or a measurement standard applied generously.
The measurement standard is the part to pin down. BOMA publishes methods, they have been revised several times, and different versions allocate mechanical rooms, vertical penetrations and amenity space differently. A lease that names a rentable area without naming the standard has left the most consequential definition in the document to a later argument.
Formula
Load factor = (rentable area / usable area) - 1, so rentable area = usable area x (1 + load factor)- Rent per usable foot = total annual rent / usable area, and it is the only cross-building comparison that means anything
- The same standard has to be applied to every suite, or the sum of the parts will not equal the building
- Loads on multi-tenant floors are higher than on full floors in the same building
Worked example
Illustrative. A tenant needs 22,500 usable square feet. Building A quotes $32.00 per rentable foot on an 11.1 percent load. Building B quotes $30.00 on an 18 percent load.
| Building A rentable area | 25,000 sq ft |
|---|---|
| Building A annual rent | $800,000 |
| Building A rent per usable foot | $35.56 |
| Building B rentable area | 26,550 sq ft |
| Building B annual rent | $796,500 |
| Building B rent per usable foot | $35.40 |
The quoted rates are two dollars a foot apart and the actual rents are within $3,500 of each other for the same amount of working space. Comparing quoted rates across buildings without their load factors compares nothing.
Conventions worth knowing
- Ask for the load factor and the measurement standard together. Either one alone will not reproduce the rentable area.
- A remeasurement at renewal can raise rentable area without a square foot changing hands. Whether the landlord may remeasure is a lease term worth reading.
The common mistake
Underwriting a rent per square foot without asking which foot
Every quoted office rent is per rentable foot and every space requirement is stated in usable feet, so a model built from market rent comparables inherits whatever load factors those buildings carry. Across a 10 percent load and a 20 percent load that is nine percent of the entire revenue line, which at a 5.75 percent cap rate is a valuation difference far larger than most of what a model spends its time on. Convert every comparable to rent per usable foot before drawing a conclusion, and keep the subject building's rentable area consistent with its own rent roll.
Related terms
- Tenant improvements and leasing commissionsTenant improvements are the landlord's contribution to fitting out a space for a tenant, quoted per square foot. Leasing commissions are the brokerage fees paid on a signed lease, quoted as a percentage of the rent over the term. Together they are the cost of putting a tenant in place, and they are capital, not operating expense.
- Triple net and expense recoveriesUnder a triple net lease the tenant pays base rent plus its share of the property's taxes, insurance and common area maintenance. Expense recoveries are the mechanism that bills those costs back, normally as a pro rata share based on the tenant's proportion of the building's leasable area.
- Rent rollA rent roll is the unit-by-unit or tenant-by-tenant schedule of who occupies a property, what they pay, and when their lease ends. It is the primary evidence behind every revenue assumption in an underwriting model.
- Price per unit and price per square footPrice per unit is the purchase price divided by the number of units; price per square foot divides it by rentable area instead. Both are comparison shorthand rather than valuation methods, and they disagree with each other whenever unit sizes differ.
- Weighted average lease termWeighted average lease term is the average remaining term across a property's leases, weighted by either rent or leasable area. It is the standard single-number summary of how long a commercial property's income is contracted for.
Keep reading
Every figure, traced to its source
Altyst computes these in exact decimal arithmetic, not with a language model, and clicking any number shows the formula behind it.