Anyone involved in the commercial property market, no matter what area, will be aware of the severe risk that rising operating costs have presented to the industry.
Almost in conjunction with the global economy falling apart, and preceded by rolling power cuts, we have witnessed the largest increases in the cost of electricity in SA history. Rates and taxes have also seen significant escalations in recent years, adding to the growing burden on property owners and occupiers,and contributing to the spiraling operating costs bills for commercial buildings.
Commercial property owners have been forced to turn their attention to protecting their valuable income streams as much as possible. It is a testament to the resilience and quality of the industry and South African business as a whole that returns have not suffered to the same extent as those in other parts of the world.
This has not been easy though, and many management teams have worked tirelessly using the best methods available to put in place measures to control, monitor, reduce and compare their costs.
To put this into perspective, average operating costs per square metre grew from R19 in 2005 to R38 in 2011 according to the 2011 IPD Income and Costs Digest. This doubling of total costs equates to annual cost inflation of around 12% a year for the six years to 2011, significantly above CPI over the same period.
Drilling down into individual costs, the main culprit is unsurprisingly electricity, which grew from R4/m2 in 2005 to R12/m2 in 2011. No fancy calculation is needed here: electricity costs have tripled in 6 years, a tremendous adjustment for commercial property owners to absorb. The fact that we enjoyed relatively cheap electricity for years does not make this increase any easier to bear now.
In order to manage these costs effectively and to measure the success one is/is not achieving, the practice of benchmarking has become very relevant. The benchmarking of investment property returns has been around for some time thanks to IPD, but recent emphasis on cost control has led to a demand for a cost benchmarking service.
For this reason IPD has developed and released the first edition of the Income and Costs Digest in 2011, which provides the most accurate and comprehensive picture of the state of operating costs in the commercial property industry.
To find out more contact Chele Moyo: This email address is being protected from spambots. You need JavaScript enabled to view it. or call 011 656 2115
