What is a loss factor in commercial real estate?

Answer 1

It is the amount of area on the floor of a building that you can NOT lease and that are not multiple floor shafts (like elevator and stairwell shafts) in relation to the total area on the floor expressed as a percentage. Then, when you determine a space to lease, you multiply it by 1+loss factor to go from "usable" sf to "leasable" or "rentable" sf before applying the rental rate. So for instance on a floor of 5,000 sf there are 500 sf devoted to washrooms, janitorial and mechanical closets, you would say you have a 10% loss factor. If someone wants to lease 1000 on the floor, even though the actual space may measure 20 x 50, your lease would talk in terms of 1,100 "rentable" square feet. Rental rates applied would be market rates based on rentable, not usable footage. There are other factors but that's the guts of it.