Recently I worked with a client in the Energy Corridor looking for new office space. He expressed strong interest in a property that had recently converted from a single tenant corporate use to a multi-tenant structure. Since the conversion was not yet complete the floor plates and common areas were not fully determined. As a result the add-on factor used to calculate rentable square footage was unconfirmed at the time we toured the property.
As a quick refresher, the add-on factor refers to the amount of a commercial building taken up by common areas such as hallways, bathrooms, elevators, the lobby, etc. A typical add-on factor will usually fall between 15-20%. This means the usable square footage of a company’s office space will be inflated by 15-20% to account for the common area space in the building.
After touring the property with my client we began discussions with the leasing broker. Upon receiving an initial proposal we discovered an add-on factor in excess of 60%! Understandably this was not an acceptable calculation for my client. Imagine leasing an office space consisting of 3,000 actual square feet, but paying rental expense on 4,800sf – out of the question. After much discussion and negotiation we were able to reduce the add-on factor to 37%, but ultimately this was not enough to make a deal.
It is not uncommon to find re-purposed office buildings with a high percentage of common areas. Typically landlords will opt to use a “market factor” which is artificially lowered to compete with other properties in the area. In this situation the landlord was attempting to secure lease agreements with an add-on factor 3 times the market rate. I advised my client throughout this interaction and we decided to pursue alternative options in the area.
Companies leasing space in a multi-tenant office building must always be aware of the add-on factor used in their building. It is important to ensure the rentable square footage for your lease agreement is calculated correctly. When considering a relocation make sure to check these numbers ahead of time to ensure a market factor is being used. This will help avoid paying for space you don’t use and likely will never see.