Whether you are looking to be a commercial landlord or tenant, you must become familiar with certain concepts. Load factor is a common one in the commercial real estate arena. According to First National Realty Partners, a property’s load factor compares its rentable square footage to usable space.
Many commercial buildings have common areas, such as lobbies and courtyards, that many tenants may access and use. These spaces are independent of the areas that are solely for the use of each tenant, of course. Still, even though they share common areas, tenants must pay for their upkeep and maintenance.
How do you calculate the load factor?
Many landlords publish the load factors for their commercial spaces, as doing so allows tenants to know how much they will spend on common areas. To calculate a property’s load factor, you must first identify the total useable space and the total rentable space.
Dividing rentable space by usable space should give you the property’s load factor. For example, a commercial building with 1,000 square feet of rentable space but only 800 square feet of usable space would have a load factor would be 1.25.
Why does it matter?
Load factor is one metric tenants can use to determine whether a commercial lease is a good buy. Indeed, the higher a property’s load factor, the more the tenant will pay for common areas. Put differently, properties with high load factors require tenants to pay more for places they cannot exclusively occupy.
Ultimately, if you do not know a property’s load factor, it makes sense to calculate it before signing a lease.