The load factor turns usable space into rentable space, and it decides which of two asking rents is really cheaper.
Rentable square feet = usable square feet × the R/U ratio, which is 1 plus the load factor (also called the add-on factor). A tenant needing 10,000 usable square feet in a building with a 15 per cent load pays rent on 11,500 rentable square feet: at $48.00 that is $552,000 a year, or $55.20 per usable foot. Compare buildings on rent per usable foot, not on the asking rent: a $50.00 building with a 9 per cent load is the cheaper one.
Worked in full in How to Read a Commercial Lease by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Usable area is the space the tenant actually occupies: inside its walls, measured to the standard the lease names. Rentable area adds the tenant's share of the common areas it cannot occupy alone. Some are on its own floor, the corridor to the lifts and the washrooms; some serve the whole building, the lobby, the mail room, plant rooms that are not excluded. Office leases in North America usually measure to a BOMA standard (ANSI/BOMA Z65.1) and charge rent, and the tenant's share of operating costs, on rentable feet. Vertical penetrations such as lift shafts and stairwells are excluded from both figures. The editions differ in how they allocate common areas, so the same floor can measure larger under a newer edition than under the 1996 one: check which edition the lease names.
Rentable area = usable area × R/U ratio, where R/U = floor R/U × building R/U
Load factor = R/U − 1, a percentage added to usable area
Rent per usable foot = rent per rentable foot × R/U
Excel: =USF*(1+Load) and =Rent*(1+Load)
A fictional tenant needs 10,000 usable square feet and is shown two floors. Operating expenses are passed through at an illustrative $14.00 per rentable foot. All figures are illustrative.
| Building | Asking rent, $ per RSF | Load factor |
|---|---|---|
| A, older tower, large lobby | 48.00 | 15% |
| B, newer, efficient floor plate | 50.00 | 9% |
Step 1, build the R/U ratio. In building A the floor's corridors and washrooms add 8 per cent: floor R/U 1.08, so 10,000 usable feet is 10,800 on the floor. The building's shared areas then add a building R/U of 1.0648. Together: 1.08 × 1.0648 = 1.1500, a load factor of 15.0 per cent.
Step 2, rentable area. Building A: 10,000 × 1.15 = 11,500 RSF. Building B: 10,000 × 1.09 = 10,900 RSF.
Step 3, rent and cost per usable foot.
| Line | Building A | Building B |
|---|---|---|
| Rentable square feet | 11,500 | 10,900 |
| Base rent, $ | 552,000 | 545,000 |
| Operating expenses at $14.00, $ | 161,000 | 152,600 |
| Base rent per usable foot, $ | 55.20 | 54.50 |
| Rent and expenses per usable foot, $ | 71.30 | 69.76 |
Building A asks $2.00 less per foot and costs $7,000 more in base rent a year, $70,000 over a ten-year term before escalations. Because operating expenses are also charged on rentable area, the gap widens by another $8,400 a year, to $15,400. On base rent alone, building B would have to ask more than $50.64 before A became cheaper. The same rentable figure drives the tenant's share of the expense pool, which is why the denominator question in how to calculate a tenant's pro rata share of CAM and this one are usually argued together.
| Load factor | Rentable sq ft | Annual rent, $ | Rent per usable foot, $ | Equivalent loss factor |
|---|---|---|---|---|
| 8% | 10,800 | 518,400 | 51.84 | 7.4% |
| 10% | 11,000 | 528,000 | 52.80 | 9.1% |
| 12% | 11,200 | 537,600 | 53.76 | 10.7% |
| 15% | 11,500 | 552,000 | 55.20 | 13.0% |
| 18% | 11,800 | 566,400 | 56.64 | 15.3% |
| 20% | 12,000 | 576,000 | 57.60 | 16.7% |
Each point of load on this space is 100 rentable feet, $4,800 a year. A remeasurement clause matters for the same reason: if the landlord remeasures building A under a newer standard and the load moves from 15 to 17 per cent, the tenant pays for 200 more feet, $9,600 a year of rent and $2,800 of expenses, $96,000 of rent over ten years for space it never sees. Read whether the lease fixes the rentable area for the term or allows remeasurement, and in which direction.
The load factor also changes over a building's life without any remeasurement. A landlord who converts part of a lobby into a lettable café or adds a shared amenity floor redistributes common area among tenants. The lease should say whether the rentable area, and therefore the tenant's share of expenses, can move when the building changes, and whether the tenant must be told before it does.
Confusing a load factor with a loss factor. A load factor is added to usable area; a loss factor is the common area as a share of rentable area, so it divides: rentable = usable / (1 − loss factor). A 15 per cent load is a 13.04 per cent loss. If a broker quotes "15 per cent" and the lease means loss, 10,000 usable feet become 11,765 rentable, 265 more than the load reading, $12,706 a year at $48.00. Ask which it is, and ask for the usable area in writing, because the usable figure is the one the tenant can check with a tape measure.
A blank model for your own rent roll and thirteen printable working documents come with the free workbook for this book.
It varies with the building: an efficient modern floor plate may carry under 10 per cent, an older tower with a large lobby and plant 15 to 20 per cent, all illustrative ranges. On 10,000 usable feet at $48.00, every point of load is 100 rentable feet and $4,800 a year, so a 20 per cent load costs $576,000 against $518,400 at 8 per cent.
A load factor is added to usable area: rentable = usable x (1 + load). A loss factor is common area as a share of rentable area: rentable = usable / (1 - loss). A 15 per cent load equals a 13.04 per cent loss. Read as a loss factor, 15 per cent turns 10,000 usable feet into 11,765 rentable, 265 more.
Only if the lease allows it, and many leases fix the rentable area for the term to avoid the argument. Where remeasurement is allowed, a move from a 15 to a 17 per cent load on 10,000 usable feet adds 200 rentable feet: $9,600 a year of rent at $48.00 and $2,800 of expenses.
This article is one calculation from How to Read a Commercial Lease. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: real estate investing, finance and fund management → · All 1340 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.