Occupation cost is crucial

“When selecting suitable premises, or even when re-negotiating with their current landlords, tenants have traditionally used rental per square meter as the filter in their decision making”, says Andrew Bradford director of property consultancy Bradford McCormack. “Pure rate per square metre as a metric is an oversimplification” says Bradford, and decision makers are now steering towards considering the overall occupation cost per employee or per square metre. Elements such as space efficiency, energy efficiency, availability of secure parking and the age of the building all need to be considered when evaluating alternatives. In this vein, industry benchmarks put out locally and globally by IPD are important considerations.

“As an example, older buildings with large, outdated and inflexible air-conditioning systems add a huge amount to the occupier’s electricity bill every month and whilst base rentals in those types of buildings may be low, the total occupation cost is often equal to that a new, modern building with a higher asking rental”, says Bradford. It appears then that before committing to any contractual arrangement, the life cycle of that specific building as well as a longer term view of total occupation costs needs to be assessed. Bradford agrees that a more transparent and consultative relationship is emerging between landlord and tenant in reducing monthly operating costs and electricity charges. “Some landlords are making a concerted effort to bring these costs under control, thereby making their buildings more competitive in the rental market and more attractive to new and existing tenants”. The days of automatically passing those costs and increases onto the tenant are numbered.

Building design is also critical. As space efficiencies increase, the overall occupation costs are shared by a larger number of users thereby reducing the overall cost per employee. Bradford concedes that the preference for floor plate sizes and spans is also changing. 12.4 meter widths in office buildings may be suitable for smaller tenants requiring cellular offices but larger corporate users are chasing the ‘maxpack’ concept to squeeze value from buildings.

“The need and desire to contain building, energy and operating costs in order to sweat more value from existing assets and resources highlights the positives that have surfaced from the current economic cycle”, says Bradford.

Article from: www.eprop.co.za