Getting the real oil on your commercial property costs

Getting the real oil on your commercial property costsI’ve been reading through some of the latest research on the commercial property market in Auckland and found two key trends.

The first is that the high vacancy levels in and around the Auckland CBD are going to stay that way at least until the end of 2013. Despite the fact that larger corporate organisations could take up 80 percent of the new office space about to come available in new buildings, the current buildings they vacate will add to the existing vacancy levels and keep vacancies high.

The second trend that relates to this is the continuing fall in the rental value of commercial property. This is putting the squeeze on landlords who continue to compete for tenants to try and ensure they get a return on their investment and at the very least cover their costs.

While this is good news for the prospective tenant, with plenty of choice and even good opportunities in the normally high-rent CBD, the rental costs do not always tell the full story.

I’m reminded of how people can fool themselves about the true costs of some common activities.

Cars are a classic example. When someone says it only costs them $50 a week to run their car, they are usually talking about the petrol, not all the other costs – insurance, lease payments or loan repayments, maintenance, registration, depreciation, etc. The real cost per week is probably more like $150+.

But even some financially astute people like to think this way.

The same goes for commercial rental. I always say people need to look at the whole picture, the impact of future rent reviews, the cost of fit-outs, the long term financial liabilities hidden in the lease terms and conditions, whether the operating expenses are economical or exorbitant, the cost of power and water, to name a few of the headline items.

And this should always be looked at on a case-by-case basis. In finding and leasing property there is never one-size-fits-all, or one going rental rate, or one standard rental for a certain city, town, suburb, street or even individual building.

The real oil is drilling down into the detail, not just glancing at ballpark headline figures and trends, and accepting them at face value.

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