Loss Factor | Propertylogy

Loss Factor

By on August 22, 2018

The loss factor refers to the ratio of unrentable space over rentable space in a building.

To elaborate this a little more for better understanding, a building might have a total square footage of 30,000 square feet with 10,000 square feet meant for escalators, elevators, walkways, etc.

This leaves 20,000 square feet available for tenants to rent.

This effectively results in a loss factor of 1/3 or 33.33%.

When renting space, especially in commercial building, the landlord or property manager might employ the clever use of loss factor in negotiation.

For example, when a client is considering renting a 1,000 sqft space with 100 sqft unusable, the landlord might quote $3 per square feet (psf) for 1,000 sqft at a total rental amount of $3,000, or $3.33 for 900 sqft of usable space at the same total amount of $3,000.

The difference (if any) is that the second option will come with 100 sqft of unusable space. And the first quote of $3 already includes accounting for the loss factor of one-third.

By including unusable space into the price, a salesperson can create the illusion of a lower rental.

This also happens a lot with residential property.

It is common practice for developers, especially during new condominium launches, to include unlivable space in the total square footage of a house.

The increase in square footage will help the price per square feet to magically drop considerably.

What home buyers often don’t realize is they are paying for the loss factor too.

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