A load factor, also known as a loss factor, is a metric that compares the amount of space a tenant pays for in a commercial lease versus the amount of space they actually use. The load factor or a commercial lease is calculated with the formula below:

Rentable Square Feet/Usable Square Feet = Load Factor

The load factor is important because tenants in commercial leases, especially leases for office buildings or large retail developments like malls, typically pay for their percentage of a building's common areas. These can include mezzanines, stairwells, bathrooms, elevator shafts, maintenance areas, walkways, and a variety of other areas, depending on the specific leasing arrangement. For example, if a tenant pays for 12,000 square ft. of space, but only 10,000 of that is usable, the load factor would be:

12,000/10,000 = 1.2

In some situations, this is also calculated as the percentage beyond one that the space has. Alternatively, one might say that the space has a load factor of 20%.

A load factor, also known as a loss factor, is a metric that compares the amount of space a tenant pays for in a commercial lease versus the amount of space they actually use. The load factor or a commercial lease is calculated with the formula below:

Rentable Square Feet/Usable Square Feet = Load Factor

For example, if a tenant pays for 12,000 square ft. of space, but only 10,000 of that is usable, the load factor would be:

12,000/10,000 = 1.2

In some situations, this is also calculated as the percentage beyond one that the space has. Alternatively, one might say that the space has a load factor of 20%.

The benefits of a high load factor in commercial real estate are that it can help landlords attract and retain tenants, as tenants may be more likely to pay for space that they can use. Additionally, a high load factor can help landlords maximize their rental income, as they can charge tenants for a larger amount of space than what they actually use.

For example, if a tenant pays for 12,000 square ft. of space, but only 10,000 of that is usable, the load factor would be 1.2 (12,000/10,000). This means that the tenant is paying for 20% more space than they actually use. This can be beneficial for landlords, as they can charge tenants for a larger amount of space than what they actually use.

The main drawback of a low load factor in commercial real estate is that it can make it difficult to attract and retain tenants. This is because tenants don't want to pay for space that they can't directly use. Additionally, a low load factor can lead to higher costs for tenants, as they may have to pay for more space than they actually need. This can be especially problematic for tenants who are on a tight budget.

For landlords, a low load factor can also lead to lower rental income, as tenants may be able to negotiate lower rates due to the fact that they are paying for more space than they need. Additionally, a low load factor can lead to higher operating costs, as landlords may have to pay for more common area maintenance than they would with a higher load factor.

The most common load factors used in commercial real estate vary depending on the type of property and the specific leasing arrangement. Generally, load factors for office buildings range from 1.2 to 1.5, while load factors for retail properties can range from 1.3 to 1.7. Source

A high load factor can be a red flag for lenders when considering a commercial real estate financing decision. A high load factor can indicate that the property may be difficult to rent out, which could lead to a decrease in cash flow and an increase in vacancy rates. This could make it difficult for the borrower to make their loan payments, which could lead to a higher risk of default. Lenders may also be more hesitant to lend on a property with a high load factor, as it could be more difficult to resell the loan in the future.

In addition, lenders may require a higher down payment or a higher interest rate for a loan on a property with a high load factor. This is because the lender is taking on more risk with a loan on a property with a high load factor, and they may want to be compensated for that risk.