What Is an Add-On Factor?
The add-on factor is the percentage of a building's gross usable space that is added to each tenant's rented space to decide their total rent.
Figuring out Add-On Factor
The add-on factor is the amount of usable square feet in a commercial property separated by the number of rentable square feet. The consequence of this calculation will be one in the event that the two numbers are indistinguishable, however it is generally lower than one since some square footage in a building won't be rentable. This non-rentable square footage incorporates space, designated as common area, that is shared with different tenants. In a building deliberately planned with large amounts of room dedicated to shared areas, computing the add-on factor helps commercial landlords and tenants arrange a fair lease agreement.
The add-on factor assumes an important part in setting lease rates. In commercial real estate, the lease cost is calculated in view of rentable area with an add-on factor tacked on for the utilization of common spaces. For instance, a 20,000 square foot building might have 2,000 square feet of common space, including lobbies, etc, which the tenants can jointly utilize. To appropriately price this common space into the lease, the landlord will compute the add-on factor to use on a tenant lease.
In this case, add-on factor is common use space of 2,000 square feet separated by the gross rentable space of 18,000 (20,000 minus the 2,000 square feet in common space)
So on the off chance that a tenant is leasing 1,000 square feet, the landlord will tack on 11.11% as the add-on factor and charge the tenant for 1,111.11 square feet to cover that tenant's portion of shared space use and its upkeep.
Add-On Factor and Loss Factor
The add-on factor is frequently conflated with the loss factor. The loss factor is the non-usable square footage separated by the rentable square footage. The square footage engaged with the loss factor incorporates structural components like inside walls, support shafts, and maintenance rooms that can't be utilized by tenants. In some cases, loss factor is classified as the add-on factor, which is the reason tenants need to comprehend what the landlord arranges as usable versus non-usable square footage. On the off chance that non-usable square footage is being calculated into the add-on factor, then this means that for a similar amount of usable space, a building with a lower add-on factor will cost the tenant under a building with a higher add-on factor. In any case, on the off chance that a building has been planned with an emphasis on shared areas, a higher add-on factor is definitely not a negative, gave that is something the tenant values.
Potential tenants frequently utilize the add-on factor to help them compare leases and figure out which lease offers the best value. While the add-on factor is important and valuable in this sense, it is just as important to explain what is being utilized to compute the number to verify that you are contrasting one type with it's logical counterpart.
- Tenants need to comprehend what the landlord characterizes as usable (add-on factor) versus non-usable (loss factor) square footage.
- The add-on factor is the percentage of a building's gross usable space that is added to each tenant's rented space to decide their total rent.
- The add-on factor assumes an important part in setting lease rates, particularly in commercial real estate.