Load factor is the ratio of rentable square feet to usable square feet in an office lease, expressing a tenant's share of building common areas. Also called the common area factor or loss factor, it converts the space a tenant occupies into the larger area the tenant actually pays rent on.
What Is Load Factor in an Office Lease?
Load factor is the multiplier that grosses up a tenant's private usable space to the rentable space it pays rent on, covering a proportional share of lobbies, corridors, restrooms, and mechanical rooms. Per BOMA standard practice, usable area is the space a tenant occupies exclusively, while rentable area adds shared common areas allocated across the building.
The concept exists because a tenant benefits from spaces it does not exclusively occupy. A lobby, an elevator bank, and shared restrooms serve every tenant, so their cost is spread across all leases through the load factor. The higher the load factor, the more common area a tenant subsidizes for each square foot it can furnish.
Term | What it includes |
Usable area | Private space a tenant occupies exclusively for staff, furniture, and equipment |
Rentable area | Usable area plus a proportional share of building common areas |
Common area | Lobbies, corridors, restrooms, mechanical and janitorial rooms |
How Is Load Factor Calculated?
Load factor is calculated by dividing rentable area by usable area. Expressed as a percentage, the common area factor equals rentable area minus usable area, divided by usable area, times 100. Per SterlingCRE Advisors and Coy Davidson, a result around 1.10 to 1.15, or a 10 to 15 percent common area factor, is common for many office buildings.
The formula:
Load factor = Rentable area / Usable area
Common area factor (percent) = (Rentable area minus Usable area) / Usable area x 100
To find rentable square feet, multiply usable square feet by the load factor. A tenant occupying 10,000 usable square feet in a building with a 1.15 load factor pays rent on 11,500 rentable square feet, the extra 1,500 representing its allocated share of common space.
Configuration | Typical load factor |
Full floor or single-story | 8 to 12 percent |
Multi-tenant floor | 15 to 20 percent |
Older or amenity-rich high-rise | 20 to 25 percent |
Source: SterlingCRE Advisors; Interior Avenue, Load Factor Explained.
Why Load Factor Matters
Load factor matters because it directly inflates the rent a tenant pays without adding a square foot of usable space. Two suites with identical usable areas and identical per-foot rents can cost different totals if their load factors differ. The factor is where a landlord recovers common-area cost, and where a tenant can overpay by ignoring it.
The stakes scale with size and lease term. A five-point difference in load factor on 10,000 usable square feet at 40 dollars per rentable foot changes annual rent by 20,000 dollars, compounding over a ten-year term. The most disciplined tenants compare buildings on effective rent per usable foot, not per rentable foot, so a high load factor cannot hide inside an attractive headline rate.
Example
A tenant compares two buildings, each quoting 40 dollars per rentable square foot for 10,000 usable square feet. Building A carries a 12 percent load factor and Building B carries an 18 percent load factor. The usable space is identical, so the only difference is the rentable area each landlord charges rent on.
Component | Building A | Building B |
Usable square feet | 10,000 | 10,000 |
Load factor | 1.12 | 1.18 |
Rentable square feet | 11,200 | 11,800 |
Rent per rentable SF | 40 dollars | 40 dollars |
Annual rent | 448,000 dollars | 472,000 dollars |
Effective rent per usable SF | 44.80 dollars | 47.20 dollars |
Building A's rentable area is 10,000 times 1.12, or 11,200 square feet, for 448,000 dollars a year. Building B's is 10,000 times 1.18, or 11,800 square feet, for 472,000 dollars. Despite matching headline rents, Building B costs 24,000 dollars more per year, or 2.40 dollars more per usable foot, entirely because of its higher load factor.
Load Factor vs Gross-Up Provision
Load factor is often confused with a gross-up provision, but they adjust different things. Load factor grosses up a tenant's usable space to rentable space for rent, spreading building common areas across leases. A gross-up provision grosses up variable operating expenses to a fully occupied level, so a tenant in a partly vacant building pays its true proportional share of costs.
The practical difference is what each protects. Load factor sets the base rent a tenant owes on day one. A gross-up provision protects the fairness of operating-expense recoveries in a net or modified lease when the building is not full. One governs the rentable area, the other governs pass-through costs.
Frequently Asked Questions
How do you calculate load factor?Load factor equals rentable area divided by usable area. To express it as a common area factor percentage, subtract usable from rentable area, divide by usable area, and multiply by 100. A building with 11,500 rentable and 10,000 usable square feet has a 1.15 load factor, or a 15 percent common area factor.
What is a typical load factor for office space?A typical load factor runs about 1.10 to 1.15 for many buildings, per SterlingCRE Advisors and Coy Davidson. Full-floor leases often fall to 8 to 12 percent, multi-tenant floors run 15 to 20 percent, and older or amenity-rich high-rises can reach 20 to 25 percent.
Does load factor increase my rent?Yes. Load factor increases rent by expanding the square footage a tenant pays on beyond the usable area it can furnish. A 10,000 usable square foot suite at a 1.18 load factor bills as 11,800 rentable square feet, so at 40 dollars per foot the tenant pays 472,000 dollars a year instead of 400,000.
Related Terms
Gross-Up Provision
Operating Expense Ratio
Tenant Improvement Allowance
Market Rent
Price Per Square Foot