Managing operating costs is crucial

Posted On Thursday, 06 May 2010 02:00 Published by eProp Commercial Property News
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The latest Operating Report Published by SAPOA – 3rd Quarter 2009 makes very interesting reading says Rodney Luntz, Managing Director of Lew Geffen Sotheby’s International Realty Commercial Investment Property.

Rodney LuntzThe report based on IPD data/research, shows that operating costs increased by 18.6% over the year to September 2009, substantially above the CPI of 6.1 % over the same period. Average retail operating costs were R55.40 per m² which translates into a 24.8% increase whilst office space costs were R32.00 per m² which was an 11% increase. Industrial property was R10.30 per m², showing an 11.9% increase.

In the retail space the biggest increase was a 59.7% rise in bad debts. Rates and taxes showed the next highest increase at 56.6% followed by electricity at 34.3%. From an office perspective bad debts once again was the largest increase at 48.3% followed by electricity at 46.9% and security at 14.2%. Rates and Taxes were the biggest increase on the industrial side at 26.8% followed by electricity at 19.6%. "What is interesting is that bad debts as a percentage to total costs seem to have hit the retail market and office markets hard and are 1.6% and 1.1% respectively and the industrial sector has been hit even harder at 3.4%." comments Luntz.

The report also shows that the two largest costs in all sectors were electricity and rates and taxes. Electricity contributes 27.1% whilst rates and taxes were 19.7%. Property owners need to take careful consideration of electricity costs. This cost will provide an incentive for owners and developers to look towards sustainable green building solutions that will reduce overall energy requirements. The same applies to Lessees as the electricity cost in most instances is passed onto them.

"In summary, it is clear that operating costs need to be managed on a continual basis as an increase of 18.6% is high in anyone’s books. As mentioned, operating costs are also impacting on the Lessee, as most of these costs are past onto them. With the current oversupply of space in all sectors those landlords who have managed to limit this increase are in a far better position to let their premises as Lessees are now looking at their overall cost when determining which premises are suitable." concludes Luntz.

Last modified on Wednesday, 21 May 2014 20:51

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