Rising Cost of Security

Posted On Thursday, 16 October 2003 02:00 Published by eProp Commercial Property News
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Commercial property owners are alarmed at the increasing cost of keeping their occupants and visitors safe.

Dave MitchellSecurity accounts for close on 9c in every rand of operating costs, more than four times the figure (2c) seven years ago. 

And the cost, expected to keep rising steadily over the next few years, will inevitably be passed on to occupants and shoppers. 

SA's crime problem has meant that property owners and investors looking for high security have had to swap municipal management for private management. 

This is true of secure precincts managed by city improvement districts; secure residential and commercial estates such as Dainfern and Linbro Park in greater Johannesburg; and secure nodes such as Johannesburg's Melrose Arch and Cape Town's Century City. 

Stepped-up security has come at a heavy price. One survey puts the bill for cleaning and security at around 20% of total operating costs for a typical Gauteng office block.

Property managers point to extreme examples, where security is as high as 60% of the total operating costs of a commercial building, or almost 10% of gross income. 
Industry data confirms that security costs as a proportion of total building operating costs have risen steeply in the past decade, from 2,35% in 1995 to 8,76% in 2002.

Investment Property Databank shows that centres smaller than 35 000 m² have the highest security expenses, at 10,78% of total costs. 

Retail centres in Mpumalanga show the highest proportion of security costs at almost 12%. Gauteng retail centre security is lower at 9,67% of total operating costs. Last year, the highest security expenses for office properties were in the Free State at 10,35% of operating costs. Gauteng had the highest industrial property security costs at 8,94%. 

And it's a double whammy. Property owners and investors already pay rates and taxes (private security costs are additional) which can chew up as much as 30% of total operating costs for a commercial property. And bigger security bills lead to spiralling operating cost escalations, the bugbear of property investors.  Says valuer Claire Jones: "Given these increases, property owners will have to budget realistically for security costs in the medium term, especially as discounted cash flows over three to five years become a preferred valuation approach." 

A reason for the rapid increases is that the security industry is labour-intensive. Though electric fencing and access-controlled gates are an important component, the role of guarding and patrolling remains critical, especially in shopping centres, where consumers demand visible policing.  Says Magnum Shield Security marketing director Dave Mitchell: "Costs in the security industry have increased off a low base in the past few years. And the entry of several international security companies to the SA market has raised expectations and, therefore, costs." 

Security industry sources say that since wage cost increases are legislated, there is little scope for negotiation with property managers. 

Negotiated increases should push security wages up by close on 9% this year, by 6% in 2004 and a further 6% in 2005.  But all is not lost. "There's huge scope for security companies and property managers to find innovative ways of reducing security costs," says Mitchell.  "Since security personnel are paid hourly rates, deploying fewer at low-traffic periods in a shopping centre is one possibility," he adds.

Last modified on Monday, 19 May 2014 09:01

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