Loss Factor
Maxing out the feet to drive the value higher.
What you pay for vs. what you “use”.
Two words a landlord can use to their advantage
Loss factor is simply the difference between what is rentable and what a tenant pays for the the usable area. If you look at an office with 500 square feet and only 450 square feet is actually usable for the business, the loss factor is about 10%. Landlords can often pass this as part of the rent for the building’s common area and can include the lobby, elevators and storage rooms.
This doesn’t have to be a bad thing, think of coworking. A tenant will pay more per square foot, but get access to common areas, kitchens and even printers. So in the marketplace, it is fairly common to be paying for usable space. But landlords can take it to the permissible allowance and measure square footage to the exterior wall of a space or even to the window line.
Any given space, ask for the square foot details
Make sure you look at the usable, rentable and loss rates. Not all landlords will offer this, but it is a reality of the market. Loss factor can serve the landlord and any prospective tenant needs to seek to understand it.
Hidden costs
Why it can be important to ask is because some buildings have increased their marketable square footprint over the past decade by as little as a few percentage points to +40%. There are no laws regulating, so landlords can pile on the square feet.
Why this is important
The reality is if you are looking at two spaces that are 2,000 square feet your business may not actually fit into both. For example if the floor is divided or the landlord is too aggressive on rentable space, you may need to account for corridors, stairs or even the thickness of walls.
