When a building is constructed an architect or engineer will measure all the space in the building and determine the overall amount of usable square footage and the amount of common area square footage. The percentage difference between the Usable and Rentable space is known as the Loss Factor or Core Factor. For Example: a building is 100,000 SF in total space, 15,000 SF of that space is common area. The Loss or Core factor would be 15%.
Landlords are entitled to get paid for all the space in their buildings including the “common areas”. There are two different methods used to do this calculation, the Add-On Factor and the Loss or Core Factor method.
The Add-On Factor is generally found in use in areas where there is high vacancy and low absorption rates. It is best illustrated by example. A tenant can use and occupy 10,000 SF in a building. The landlord uses an Add-On factor of 15% representing the common area of the building. How much space is the tenant billed for?
To calculate; we consider the usable square footage occupied by the tenant to be 100% of their space and add to that 15%. The percentages are converted to decimals and multiplied by the usable amount of space.
100% + 15% = 115% or 1.15
10,000 SF X 1.15 = 11,500 SF
The tenant must pay for 11,500 SF of space.