June 2007
The Mysterious “Loss Factor”
By Jim Mayland, Research Manager
Jim Mayland
What is the mysterious loss factor, the “gross-up” or “load factor”, or you often hear it referred to as the R/U factor, or rentable to usable factor? (For the purposes of this blast, it shall be referred to as loss factor.) No matter what one calls it, it's generally none too positive for the tenant. This figure can vary wildly from market to market, building to building, even from floor to floor.
A building has three areas:
- Gross Area – the total floor area enclosed by the perimeter walls;
- Rentable area – which is the gross area less vertical penetrations (stairwells, elevator shafts)
- Usable Area – which is the rentable area less unusable areas by a tenant (Elevator lobbies, corridors, bathrooms, janitor and electrical closets).
For all parties concerned in lease negotiations, it is extremely important to compare not just the rentable square footage, but the usable square footage. For example, a single-tenant floor in Minneapolis may have an 8% loss or R/U factor, while a multi-tenant floor may have a 15% factor.
Colliers Research set about to take a look at the loss factors (and what a usable asking rent would be) of some major markets across North America. Not surprisingly, midtown Manhattan (where one is allowed to measure to the gargoyle on the outside of the building or the outside ledge if a gargoyle doesn't exist) has the highest loss factor at 27%, pushing "useable" asking rents for Class A space to $112.93 psf. Minneapolis has a loss factor in the middle at 15% resulting in useable asking rent of $28.74.
|
“Rentable” Asking Rent/PSF |
Loss Factor |
“Usable” Asking Rent/PSF |
|
|
Midtown Manhattan, NY |
$ 82.44 |
27% |
$ 112.93 |
|
Lower Manhattan, NY |
$ 50.34 |
25% |
$ 67.12 |
|
Washington, DC |
$ 46.71 |
15% |
$ 54.95 |
|
Toronto, ON |
$ 46.45 |
17% |
$ 55.96 |
|
San Francisco, CA |
$ 44.41 |
23% |
$ 57.68 |
|
Chicago, IL |
$ 37.00 |
14% |
$ 43.02 |
|
Los Angeles, CA |
$ 34.40 |
20% |
$ 43.00 |
|
Vancouver, BC |
$ 33.68 |
15% |
$ 39.62 |
|
Seattle, WA |
$ 28.80 |
11% |
$ 32.36 |
|
East Bay, CA |
$ 27.24 |
13% |
$ 31.31 |
|
Minneapolis, MN |
$ 24.43 |
15% |
$ 28.74 |
|
Houston, TX |
$ 23.71 |
18% |
$ 28.91 |
|
Philadelphia, PA |
$ 23.36 |
15% |
$ 27.48 |
|
Atlanta, GA |
$ 22.02 |
12% |
$ 25.02 |
|
St. Louis, MO |
$ 20.60 |
12% |
$ 23.41 |
So what does the loss factor mean to tenants in Minneapolis? It means that the rent they are paying for the usable space is actually higher than their rentable number.
What does this mean for landlords? It means that they can use this loss factor to their advantage. If they have a lower loss factor than a building, their rentable asking rent can be higher, but still usable rent will still be lower than a competing property. What does this mean to brokers? They need to understand how the loss factor works, and how to convert the asking rents into useable rents. This will ultimately give their client true apples to apples comparison on their rental rates.
Featured Team
The team of Julie Yeazle, Kai Thomsen and Will Buckley specialize in Health/Medical and Office Leasing in the North Metro area. As a recently teamed group, they have 300,000 SF listed and have closed over $20M in transactions within the past 6 months. Yeazle, Thomsen and Buckley serve a variety of clients, including: MSP, Fort Properties, Buffalo Wild Wings, US Energy Services.
Julie Yeazle, CCIM
Julie Yeazle, CCIM joined Colliers in 2006 as Senior Associate in the Office and Medical leasing arena. Julie has provided leasing and marketing services for more than 15 years in the Twin Cities commercial real estate market. For over 8 years, she has provided landlord representation for more than 1,250,000 SF of office space. She also has provided medical office leasing services for both medical users as well as health/medical related landlords. Julie is a member of MNCAR and NAIOP, and is a Certified Commercial Investment Member (CCIM) candidate. She is a graduate of Augsburg College, where she received her BA in Marketing.
Kai Thomsen
Kai Thomsen specializes in suburban office leasing and sales advisory services, and is a member of the Health & Medical Group. He joined Colliers in 2005, prior to which he as an associate in office leasing with Welsh Companies. In his seven years of commercial real estate experience in the Twin Cities, Kai has worked on more than 2,000,000 SF of landlord listing work, representing owners such as Opus, Glenborough Realty Trust and Trizec Properties. He has been involved with more than 180 transactions in the past 5 years. Kai is a member of MNCAR, NAIOP, NAR, and is a Certified Commercial Investment Member (CCIM) candidate. He is a graduate of the University of Iowa, with a BS in Economics with an International Business Certificate.
Will Buckley
Will Buckley joined the team of Yeazle and Thomsen in June of 2006, following a research internship with Colliers. Will had performed research for Colliers’ market reports and gathered transaction information to maintain the comparables database. In 2005 he was the recipient of the SIOR Student Scholarship, and completed his BS in Real Estate Studies at the University of St. Thomas in May of 2006. Will is currently a member of MNCAR and NAIOP.
Updates
Brokerage – Recent Transactions
(Arden Hills, MN) – Ronald Scholder, SIOR, vice president in the Industrial Sales and Leasing division and David Myers, Vice President of Corporate Services for Colliers International – Toronto, represented Celestica International in the lease extension of 154,264 SF of industrial space, located at 4300 Round Lake Road in Arden Hills. The landlord for the building is Arden Hills Industrial, LLC.
951 American Boulevard
(Bloomington, MN) – Dennis McClinton, SIOR, CCIM, senior vice president/principal and Will Leaf, associate in the Industrial Sales and Leasing division represented Bain Golf Properties, LLC in the sale of a 17,962 SF industrial building, located at 951 American Boulevard in Bloomington, valued at $1.39 million to Fidelity Building Services, Inc.
(Minneapolis, MN) – Andrea Christenson, SCLS, second vice president of the Retail Sales and Leasing division represented Tandem Development in securing a new Asian fusion restaurant, Otho, to take on 3,735 SF of space, located at 10th and Portland Avenue South.
