The Commercial Real Estate Blog

What is a typical loss factor in office space

Potential clients may have heard of a typical loss factor in office space, but they do not necessarily know what it means. A “typical loss factor” is when a person shops for an office area and he hardly gets the exact square footage quoted, or at times, he gets a bigger number, but when he views the office, it is a lot smaller than what he had visualized. It does make one wonder why landlords do this to potential clients.

What Does it Really Mean?

In order to understand this practice, one needs to comprehend how a building’s area is divided. For instance, a 20,000sqft building is divided into 10 offices. Each office space is about 1000sqft, which is a total of 10,000sqft that landlords are able to lease and obtain a return on. Nevertheless, what happens to the remaining 10,000sqft? Where is it being used, and how will landlords obtain a profit on their investment with this space?

What is the Lost Space Used for?

Lobbies, elevators, bathrooms, electrical closets, perimeter convectors, as well as many other areas generally take up the “lost space”. These are all amenities that tenants can certainly benefit from inside the building. However, given that a landlord is able to lease out only 10,000sqft while having to pay a loan for the entire 20,000sqft, it does not sound like investing in a building is a good idea.

Creativity is Important

With creativity, a landlord is able to use an equation in order to figure out how much per square footage he can add to each office space that will allow him to cover the cost of the lost space, which he is paying for as part of the loan. A typical loss factor is the percentage of the total office space that a tenant pays for, but are unable to actually use. To have a better understanding of what it is, it is best to consult a reputable real estate broker.

If you are interested in finding out more, please contact Darell Handler at 646.783.3750 or click below and he will contact you.