Add-On Factor


Add-On Factor
The number of usable square feet divided by the number of rentable square feet in a commercial real estate lease. The result of this calculation will be 1 if the two numbers are identical, but it is usually slightly lower than 1 because some square footage in a building will be partly or totally non-unusable. Non-usable square footage includes space shared with other tenants (such as lobbies, hallways, stairwells, elevators and restrooms) or occupied by structural components (such as support poles and interior walls). In a poorly designed building, the usable area may be considerably less than the rentable area.

In commercial real estate, the lease cost is calculated based on rentable area, which includes areas that are not usable. This means that for the same amount of usable space, a building with a lower add-on factor will cost the tenant less than a building with a higher add-on factor. The add-on factor is important because the tenant pays for this unusable space in his lease. He pays for a fraction of shared common areas and he pays for all of the space he rents that is occupied by structural components. Potential tenants can thus use the add-on factor to help them compare leases and determine which lease offers the best value.


Investment dictionary. . 2012.

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