Loss factor is the square footage in an office or industrial building that is not usable by the tenant. This includes common area, hallways, lobby areas, etc. The way to determine the amount of rentable SF in an office building is by multiplying the space you want to lease by 1+ loss factor to go from usable SF to rentable SF. An example is if you owned a (very small) 5,000 SF small office building and 500 SF was devoted to common area you have a 10% loss factor. If a tenant wanted to lease 1000 SF in this building, your would measure out 1,000 usable SF, but your lease would be 1,100 rentable square feet. (Still confusing?) Rental rates advertised are almost always in rentable SF, not Usable SF. Loss factor can vary by building depending on a multitude of factors and is a very important variable to consider when determining the true value of a Office, Industrial, or retail space. I can’t tell you how many times this variable alone will sour the taste of a property for a tenant.
Rentable Square Feet combines Usable Square Feet + the Loss factor in an Office or Industrial Space. Rentable square feet will always be the higher number. Usable square feet is the measurement of the actual space that is used directly by the tenant. In the Houston market, office space could have a loss factor anywhere from 15% to 25% depending on how much Common area is designed in building itself. Generally speaking, Tenants always want the highest amount of usable SF Possible. This is achieved by selecting buildings with a low loss factor. The trick about loss factor is this number is “hidden” and very difficult to verify for those outside of the industry. Checking these numbers requires participation from the landlord and even floorplan details from other tenants to get a realistic number. These numbers are not posted online and can change based on recent renovations which is why we are always updating our database when new deals are done in the Houston market. Occasionally a landlord may have a “rubber ruler” when measuring space so it is always better to trust AND verify on deals.