ELECTRICITY not only remains the single biggest operating cost contributor, but the rate at which it is growing is also the highest.

Themes reported by listed property companies this month were: a tough environment; rising operating costs; and municipal and utility costs. But there was also improved letting.

According to a report compiled by Investment Property Databank SA, together with low base rental income and higher costs, annual net income growth at all property levels has moved into negative territory.

The report notes that although the composition of the top three operating cost categories is largely similar in proportion across the three main commercial property types — retail, office, industrial — the rate of increase in the total costs (in rand per square metre) over the past six months has changed somewhat.

Offices now bear the heaviest increase at 19%, which has also fed into offices having the highest increase in the proportion of costs to total income at 5%.

The rate of increase in operating costs has been the steepest for retail over the longer term. However, for the past six months, the big increase has been felt in the office sector.

Office operating cost increases are now most keenly felt in Gauteng and the Western Cape, where they have increased 21,5% and 18,2% respectively over the past six months.

Across all property, more than 50% of operating costs occur within the “big three” (electricity 29%, rates and taxes 21% and management 9%).

The report shows that not only is the contribution of electricity to overall operating costs the highest, but its growth is also higher than any other cost.

Interestingly, tenant installation cost growth was the second highest; this perhaps speaks to the competitiveness of the market at the coalface of the tenant attraction and retention business.

Source: Business Day