Have you ever walked into two offices in different buildings with the same quoted square footage and one felt bigger or smaller than the other? Your eyes aren’t necessarily playing tricks on you. What may appear to be an optical illusion isn’t an illusion at all. It’s a characteristic of multi-tenant office buildings called load factor (or core factor), which refers to the ratio between a building’s rentable and usable square footage.
Multi-tenant office buildings are unique in that they have certain areas of the building that are shared by some or all of the tenants in the building. The most recognizable examples of these “common areas” are building lobbies, hallways, bathrooms, elevators, stairwells, etc. In newer or recently renovated office buildings, landlords may choose to set aside space or convert previously occupied or undesirable space, such as lower level, windowless space, into fitness facilities, conferencing centers, tenant lounges, etc. All of these common areas and amenities reduce the actual square footage that the landlord can lease to tenants and because landlords are not in the business of leaving money on the table they recoup the costs/square footage taken up by these areas by applying the building’s load factor to the tenant’s usable square footage; resulting in a higher, rentable square footage number.
If you’ve ever leased office space before you’ve probably seen the phrase “approximately X square feet measured in accordance with BOMA standards.” BOMA stands for the Building Owners and Managers Association and is the internationally recognized standard used to measure office space. There are two measurement methods under BOMA for determining a building’s total rentable area and, while they should produce the same results most of the time, there are subtle differences that can impact the amount based on a building’s layout and the location of its common areas.
Method A, referred to as the Per Floor Load Factor Calculation (or Legacy Method), calculates rentable area by floor. The main level/first floor/lobby of the building is used for ingress and egress by all tenants and thus the load factor for that level is calculated and applied to the rentable/usable ratios for each independent floor. This can be relevant if one tenant occupies multiple floors in an office building. The floors/levels occupied by such tenants do not have (are not required to have) common area corridors and their bathrooms are not accessible to other tenants in the building. This decreases such tenants’ load factor because of the increase in usable square footage relative to rentable square footage.
Method B (Single Building Load Factor) calculates a load factor for the entire building that is applied uniformly. Once calculated the rentable/usable ratio is applied to each tenants’ space or occupant area, as defined by BOMA. Because the actual rentable/usable ratio may vary from floor to floor this method may provide a slight benefit to some tenants over others; however, due to its simplicity this method is popular choice for many landlords.
Because tenants are charged based on their rentable square footage a building’s load factor is an important factor to know when choosing between leasing alternatives. If a tenant is looking to lease 10,000 SF and deciding between Building A which has a core factor of 15% and Building B which has a core factor of 18%, all things being equal, they should choose Building A, which provides an additional 300 SF of usable space. The impact of the load factor increases directly with the amount of square footage. At 100,000 SF that difference is 3,000 SF which at 200 SF/employee will all the tenant to accommodate 15 additional employees.
What do landlords do if their building’s load factor is higher than market and negatively impacting their ability to attract tenants? In such cases, landlords may apply an artificial cap to their building’s load factor in order to bring it in line with the competition. Class A/Trophy buildings with numerous amenities are prime candidates for the application of a market load factor and, while landlords may be foregoing some amount of rentable square footage, tenants are willing to pay higher rents exactly because these buildings provide such high-end features thus negating the aforementioned loss.
For more information you can visit www.BOMA.org.