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What is a loss factor and how do you calculate it?

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icon_Follow_en_US What is a loss factor and how do you calculate it?

How to calculate loss factor in New York City

What is a NYC loss factor?

The NYC loss factor is unlike any other city in the world. Few real estate concepts cause as much confusion with tenants, and even some real estate professionals, as the difference between usable square footage  (USF) and rentable square footage (RSF) .  A quick primer on USF, RSF, and Loss Factors, is in order for anyone searching for office space in order to streamline their search and obtain the most value from their lease.

Before breaking down the USF and RSF it is important to understand what a loss factor is. Loss factor is defined as the “percentage of Architect-Rubber-Ruler What is a loss factor and how do you calculate it?the building’s area shared by tenants… that are dedicated to the common areas of a building and used to calculate the difference between the usable and rentable areas.” The loss factor takes into consideration the building’s lobby, elevators, stairwells, shafts, and mechanical areas. In New York City, loss factors are less determined by actual physical features of a building and floor but rather set by the market. For example many tenants renewing leases today are shocked to find out that their space has grown- what was once 3,400 RSF is now 3,852 RSF!

How does a building grow?

When the office leasing market becomes more competitive, building owners look to for ways to extract more revenue from their buildings. Tenant’s tend to compare space on a $/RSF basis so while the $/RSF could only be hiked up so much while seeming competitive, Landlords can  play with the Loss Factor as a way of increasing rental income. So when the market heats landlords will increase the loss factor one by one until the new loss factor becomes the market standard. Once this catches on there is no turning back.

Usable square footage (USF)- A tenant’s usable area which some refer to as “carpetable area” is the amount of square footage that the tenant can use for its business purposes as calculated using a standard of measurement defined by Building Owners and Manager Association (BOMA).

USF is calculated differently for full floor tenants than for partial floor tenants. For a full floor tenant the usable square footage includes the perimeter of the floor from the glass including all area dedicated to the floor such as bathrooms, mechanical rooms, elevator lobby ect. For partial floor tenants the usable square footage in the area within the demising walls of the tenant’s own space. Area’s such as common area restrooms, mechanical rooms on the floor, and common corridors are not included in the usable area. Once the USF is calculated a loss factor is applied to get to the rentable area.

Rentable square footage (RSF)- This is the amount of space that the tenant pays for. The rentable area is calculated by applying a building’s loss factor to the USF.

Calculator-AD-1-e1521812457133 What is a loss factor and how do you calculate it?

How is the rentable square footage calculated?

The formula used for calculating the rentable square footage (RSF) from the usable square footage (USF) using a defined loss factor (LF) is:

USF/1-LF=RSF

For Example:

After meeting with an architect and reviewing their space program TechChamps learned that they need 8,000 USF. They are looking at a building offering a full floor with a 27% loss factor and a building with a divided floor with a 34% loss factor.

To gross this up to a RSF using a 27% loss factor it would look like this:

8,000/1-.27= 10,959 RSF

To gross this up to a RSF using a 34% loss factor it would look like this:

8,000/1-.34= 12,121 RSF

Full Floor vs Shared Floor

After seeing office spaces in different buildings and on different floors a tenant will begin to notice that they will fit into one space that is 3,500 RSF on a full floor but not into 3,500 RSF on a divided floor. This is because the loss factor on a divided floor takes the common corridors on the floor into account thereby increasing the shared area for the tenants on the floor. Due to the fact that floors could be divided in many different ways, some more efficient than others, a tenant could also find themselves fitting into 3,500 RSF on one divided floor and will not fit into 3,500 RSF on another divided floor in the same building.

To learn more about how to engineer your search to get more bang for your buck call us at 212-300-3265 or email us here.

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Jack Cohen

Jack Cohen has over 15 years of industry experience developing and implementing real estate strategies for clients in Manhattan and throughout the United States. Prior to founding Spaces Commercial Real Estate, Jack was a Managing Director at Colliers International for 3 years and a Director at Cushman & Wakefield for 9 years. Jack’s forward thinking has engineered some of Manhattan’s most unique and difficult deals including the repositioning and leasing of 636 11th Avenue, a 564,000 RSF warehouse to office conversion, which was awarded real estates highest honor- REBNY’s Henry Hart Rice Most Ingenious Deal of the Year Award. Jack is a graduate of Rutgers University School of Business where he majored in Economics and Business Management. He is a member of the Real Estate Board of New York, the executive committee of American Israel Public Affairs Committee (AIPAC), and the Board of Education of Keter Torah, his childrens’ school. Jack lives on the Jersey Shore with his wife and three children.