The multiplier to a tenant's useable space that accounts for the tenant's proportionate share of the common area (restrooms, elevator lobby, mechanical rooms, etc.)In short, the load factor is the percentage of space on a floor or building that is not usable and is expressed using the simple formula of rentable area divided by useable area minus one.
For example, if an office building has 200,000 square feet of useable square and a total rentable area of 220,000 square feet then the building has a load factor of 10.0% (220,000 rentable square feet divided by 200,000 usable square feet less one). This is an important metric as rental rates can be quoted on a per rentable square foot basis.
For example, if a tenant is comparing two equally sizes suites at different buildings, both with the same rental rate per rentable square foot, but building A has a load factor of 5.0% while building B has a load factor of 15%, then building B would be 10% more expensive even though the tenant is occupying the same amount of space at the same rental rate.
Another common use of load factors is in calculating CAM charges in a multi-tenant building. Here, even if base rent is based on useable square footage, expense reimbursements are often based on a tenant’s proportionate share of rentable square feet. The logic in both these examples is that the tenant benefits from use of the building’s common areas and thus should contribute financially for its use.
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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
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