Recently, I was helping a client evaluate a couple different spaces in an industrial park, and they kept making a comment about the size and costs. I pointed out that each building has a different load factor, which ultimately impacts the costs. Then, it occurred to me that small and mid-size tenants almost never bring up this issue. When I represent a client, I always bring up the costs and differences in square feet. If I’m lucky, they won’t fall asleep before we discuss actual versus rentable square feet, and maybe even usable square feet.
Load factors can be a big deal with multi-tenant buildings, so I’ll summarize them briefly.
USABLE SQUARE FEET (USF) = THE SPACE YOU CAN ACTUALLY USE
This is the space between the four walls. You can measure it and you can use it. It’s also rarely what you’re leasing. If the interior dimensions of an office are 30′ x 40′, you have 1200 sf of usable space.
ACTUAL SQUARE FEET (ASF)= THE USABLE SQUARE FEET, INCLUDING INTERIOR WALL THICKNESS
In a multi-tenant building, you typically share a couple walls with your neighbor. For brevity’s sake, we’ll just assume half of the wall thickness is included in your space dimensions in all directions. How’s that work? Well, using our previous example, with a wall thickness of 6″ (for this example) the space dimensions are now 1/2 of 6″ PLUS the wall length PLUS 1/2 of 6″ in both directions. Now that 30′ x 40′ room is 30′6” x 40′6” = 1,235.25 sf (a 2.9% increase in size).
RENTABLE SQUARE FEET (RSF)= ACTUAL SQUARE FEET PLUS A PRO-RATA SHARE OF COMMON AREA
Again, in a multi-tenant building, there are lobbies, common restrooms, hallways, etc and tenants pay their pro-rata share of those common areas. For simplicity, if a 100,000 sf building has 86,957 of leasable sf, their load factor is 15%. More sophisticated companies really review a building’s load factor and most of them will limit the load factor to 15% (yes, you can negotiate this issue).
This is how the building load factor is used: Take the actual square feet of a space & add the building load factor. Using a 15% load factor for our previous example:
1235.25 asf * 1.15 (15% load factor) = 1,421 rsf
In this example, that 1,421rsf (Rentable Square Feet) space you’re looking to lease is really only 1200usf (Useable Square Feet). That’s almost a 16% difference, which is significant.
HOW TO COMPARE BUILDINGS WITH DIFFERENT LOAD FACTORS
To make a quick observation, we’ll have to neglect wall thickness since there are so many room configurations and wall differences, but we can make an observation between “actual square feet” and “rentable square feet.”
For my client, they were evaluating two buildings and one had a 5% load factor & the other had a 15% load factor. I’ll assume they both had the same rentable square feet for this example.
Building 1: 15% load factor, 3,000 rsf
3,000 rsf = ASF * 1.15 —> ASF = 3,000 rsf / 1.15 = 2,609 asf
Building 2: 5% load factor, 3,000 rsf
3,000 rsf = ASF * 1.05 —> ASF = 3,000 rsf / 1.05 = 2,857 asf
SUMMARY
That’s a 248 rsf (9.5%) difference (maybe 2 more offices or a conference room).
On the other hand, if the building you are considering has a common conference room, or common waiting room, or other amenities, it can be worth going to a building with a larger load factor in order to avoid having to rent a larger space to accommodate all your needs in the leased space.
If you need help determining some of the potential options or just need general information for the real estate market, give me a call at (206) 293-1005 or email me at Jen@HudsonCREG.com.