Office Leasing: Loss Factor

Gregg Cohen Office Leasing: Loss Factor

Different commercial space for rent has different loss factors, depending on various characteristics of the office space you are considering. Have you ever walked into an office when looking for commercial space and said this doesn’t feel like x (insert number) of square feet!? You think about an apartment or a house, and you think how can this be the same? Well, it isn’t, and that’s because of the loss factor. It’s basically the difference between what you are paying for, and what you are actually using.

Paying for office space you don’t use? Commercial rent is quoted in a rate per rentable square foot. This is the number you use to understand what your rent is and is stated in your office lease. However, that is just part of the picture because it is not how much you can actually use.

Why? Because as a tenant in the building you pay for the common areas that everyone as a tenant of the building uses. Things like the lobby, elevator shafts, the fire safety stairs, common corridors, electrical closets, and bathrooms. In New York City, this “loss factor”, or difference between the space you use and the space you pay for, is based upon the Real Estate Board of New York (REBNY) standard.

What should you care about? First and foremost, you should think about if you fit in a space, and if it will work for you. If you ask about loss factor when considering commercial space in New York, you most likely will get the standard response of 27% on full floor, and 37% on partial floor. When working with an architect, they will take a file, called a CAD, of the space you are exploring and will be able to tell you how much usable space you are receiving. From that, you can understand if the office space you have selected is less, or more, efficient than other options being considered.

When it’s about getting the most bang for your buck, 10 out of 10 times I will suggest a client focus their attention on full floors rather than partial floors because it is 15% more usable space.

As an example:

  • Full Floor 10,000 Rentable Square Feet with 27% Loss factor = 7300 Usable Square Feet
  • Partial Floor 10,000 Rentable Square Feet with 37% Loss factor = 6300 Usable Square Feet
  • 7300 USF is 15% MORE usable square Feet than 6300. 7300 –6300 = 1000 which equals 15% MORE usable square footage.

Is this the case in the entire country?

No! New York is different. New York goes by a REBNY standard, while the rest of the country goes by a BOMA standard. The main difference is simplified: BOMA measures to the centerline of the window, while REBNY measures to the center of the building.

Here’s a great resource from HLW to understand it in greater detail.

Hopefully, the above explanation has helped you understand the intricacies of the loss factor. I think it also helps to highlight the complexities of the process, and the importance of having a team of professionals, including a commercial real estate broker, and an architect, to help you with the office leasing process. As always, feel free to reach out with any questions you may have.

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