If you are new to commercial real estate, you may be looking to rehabilitate a space and rent it to tenants as quickly as possible. When communicating with potential tenants, advertising your property or applying for financing, it is important to identify total rentable square feet. If your commercial space is a multi-tenant building, you should also calculate load factor.
Rentable square feet includes both the space a tenant uses and the entire property’s shared space. Usable space, otherwise known as occupied space, is where your commercial tenant sets up business. Shared space, by contrast, includes stairways, elevators, lobbies, common hallways and public restrooms.
The load factor
A commercial property’s load factor is the difference between usable space and rentable square footage. Identifying the load factor helps your tenants understand what they must pay to be in a building with shared spaces they may rarely use.
Some simple math
If you know the square footage of your property and each unit, calculating load factor is not difficult. To do so, you simply divide usable square feet by rentable square feet and express the quotient as a percentage.
For example, if your commercial property is 50,000 square feet and has 5,000 square feet of shared space, the tenant has 45,000 square feet to use. 50,000 divided by 45,000 is 1.11. This means your property has a load factor of 11.1%.
Load factor may change over time due to building improvements or for other reasons. Therefore, before leasing your space or applying for financing, you may need to recalculate load factor to ensure you have an accurate number.