Have you ever found a great listing for your operations, only to find that the space was a bit cozier (okay, way cozier) than advertised?  All of a sudden that “aggressively” priced unit isn’t such a steal after all.  While it is certainly still the case that landlords are out for your money, there is a reason for what may seem to be the old bait-and-switch.  In most (if not all) office buildings, there are spaces known as common areas – the parts of the building used to service more than a single tenant.  Those parts include lobbies, bathrooms, elevator banks, stairways, custodial closets, etc. How much space those common areas amount to can be determined by important CRE metrics that directly affects your occupancy cost: loss factor.

To calculate loss factor, building owners and managers find the percentage difference between rentable square feet (RSF) and usable square feet (USF).  That is:  (RSF-USF)/RSF.  (Note: Listing services will often display RSF as Gross Leasable Area, GLA, or Rentable Building Area, RBA.)  As an example, consider a building with 10,000 RSF of office available and a 15% loss factor.  Absorbing this space will mean you will be responsible for paying for the 8,500 USF plus your share of the common areas (based on how much of the building that 10,000SF unit represents).

Building owners, property managers, and listing agents will often omit loss factor (to avoid telling you exactly how much you’re not getting) and only tell list the rentable area.  This can be a touch misleading so be sure to pay attention to how information is displayed.

In New York City, and other major metro areas, loss factors typically range between 20% and 40%.  Architectural trends have led to greater loss factors as newer buildings (and really most buildings built after 1970) are being constructed with larger lobbies and more open layouts.  And although buildings typically have similar loss factors within certain markets, loss factor is determined on a building-by-building or even unit-by-unit basis.  Tenants who absorb entire floors plates tend to lose less and spend more efficiently on a per square foot basis than those who make their home on divided floors.