Unlike most areas of the country, in Manhattan commercial landlords employ the concept of renting “rentable” square feet when they lease a space, be it office space, retail space, medical space, showroom or loft space. To understand this concept more clearly one needs to recognize the premise that a landlord always wants to rent every square foot of space in his building. Naturally, this is not possible from a physical standpoint since designated common areas of the building, such as public bathrooms, stairwells, elevator shafts, mechanical rooms, common corridors on divided floors, etc are meant for all tenant’s use and therefore cannot be leased to individual tenants. Hence the landlord apportions a percentage of the common areas to each tenant in the building consistent with the amount of useable space the tenant is actually occupying.
Buildings “Loss Factor” Calculated by Landlord’s Architect
Simply put, if a landlord owns a building that is a “real” 100,000 square feet he asks his architect to calculate exactly how much of that 100,000 square feet he/she can actually lease to tenants; the remaining portion being designated to “common areas.” By example, if the architect calculates that 30,000 square feet will comprise all of the common areas then the landlord knows he can lease 70,000 square feet to tenants. The landlord will then calculate what is typically called a loss factor. In the aforementioned example, the loss factor is 30%. In essence, the landlord will be renting 100,000 “rentable” square feet and the tenants will be getting 70,000 “useable square feet. To be more specific, if there is an available space designated as 2400 “rentable” square feet, in actuality, that space should measure out to 1680 “usable” square feet, thereby reflecting a 30% “loss factor.”
While for many commercial tenants this becomes a difficult concept to accept, as typically nobody likes to pay for more space than they are physically occupying, the reality is that this dynamic is inherent when leasing commercial real estate in Manhattan and landlords, by and large, will not deviate from this concept.