**What is load factor and why does it matter?**

PHOTO CREDIT: By Who is Danny/shutterstock.com

PHOTO CREDIT: By Who is Danny/shutterstock.com

One of the first steps in planning for office space is to determine how much

So far, the math is pretty simple. Determine the number and size of offices, conference rooms, etc... plus an estimate of space needed for circulation (hallways/corridors) and you can roughly estimate your

Simply put, usable square footage is the actual and exclusive space you occupy inside your suite where you conduct your business. Usable square footage does not include common areas of a building such as lobbies, shared restrooms, stairwells, storage rooms, and shared hallways.

Now that you’ve developed an estimate of the amount of space you’ll need, it should be pretty straight forward to identify the space alternatives that meet your size and budget requirements. But it’s not. Because, while tenants understand and think in terms of their

Your rent will be based on

Rentable square footage is your usable (actual and exclusive) square footage PLUS a portion of the building’s shared or common space (lobbies, shared restrooms, stairwells, storage rooms, and shared hallways, etc..). Each tenant pays for these common areas in proportion to the amount of space they lease in the building.

Since no two buildings have identical amounts of common area, you will rarely if ever find that two spaces listed with the exact same rentable square footage are equal in usable space. This is where the math stops being simple.

The variable in your rent equation that accounts for these common areas is called the

- Useable Square Footage + Load Factor = Rentable Square Footage
- Rentable Square Footage X Rental Rate = Rent

Understanding the load factor of the alternatives that you are considering is essential to determining the best size fit and value for your office space. While you’d think that such an essential variable in the rent equation would be included in marketing collateral and industry databases, load factor is often not. In fact, it’s not uncommon for listing brokers to be uncertain or unaware of the building LF when showing space. Two things listing brokers like to withhold in tight markets, the asking rent and load factor. (More on Asking Rent: WITHHELD).

While tenants always understand that you can’t determine rent without the asking rent, they don’t always understand that load factor is just as important to the calculation of their rent.

For example, two alternatives are marketed with the same size (10,000rsf) and asking rent ($60.00/rsf/yr) may appear equal but they aren’t. When you include the differences in load factor (20% vs 10%) you gain 757usf (9,090usf - 8,333usf) in option 2 for the same rent as option 1.

- 10,000rsf with 20%lf = 8,333usf
- 10,000rsf with 10%lf = 9,090usf

From a tenant’s perspective, the

- (10,000rsf X $60)/8,333usf = $72.00/usf/yr
- (10,000rsf X $60)/9,090usf = $66.01/usf/yr

So, while the two alternatives are marketed as the same size (10,000rsf) and asking rent ($60/rsf/yr), alternative 2 is a better value at $66.01/usf/yr based on a lower load factor.

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