Rates, energy and insurance biggest office expenses

Energy charges make up the biggest chunk of opex after rates, show the latest Property Council figures. Photo / Supplied

Rates, energy and insurance between them make up over 50 per cent of the total annual cost of operating expenses that office tenants face.

The most recent Property Council survey of operating expenses (opex) in New Zealand's four largest CBD office markets - Auckland, Hamilton, Wellington and Christchurch - shows that, with the exception of Hamilton, rates make up the biggest chunk of opex.

Next are energy charges such as electricity and gas.

This is followed by insurance, although this is influenced heavily by a building's location, with those in earthquake risk areas facing significantly higher costs. The Property Council benchmarking shows insurance charges for Wellington CBD properties are more than three times the cost of their Auckland and Hamilton equivalents, with the median insurance cost for Wellington sitting at over $8.60 per square metre a year.

The median opex charges for A-grade CBD office premises in New Zealand has reached just over $114 per square metre per annum, shows the survey.

Occupiers of B-grade offices pay a median of about $86 per square metre annually while this drops to just over $73 per square metre per annum for C-grade properties.

Yearly opex charges are much more expensive in Auckland and Wellington than in Christchurch and Hamilton.

The median opex cost in Hamilton is almost $50 per square metre a year less than Auckland's $90 per square metre median, with significantly lower rates being a major contributor to the difference.

Christchurch also benefits from lower rates, with its median opex at just over $50 per square metre a year.

Wellington's is close to $80 per square metre.

Nicholas Piper, commercial property divisional manager for Bayleys Property Services, says the economic downturn means property owners are coming under increasing pressure to hold down opex charges as tenants look to minimise their occupancy costs. In some instances landlords are making an opex contribution as part of a tenant incentive package.

The survey shows that gross leases where the landlord pays the opex have been part of the Wellington office market for years, but property owners in other parts of the country have resisted moving away from net leases where tenants are responsible for outgoings.

"However, tenants these days are focusing on their total occupancy costs, not just the rental figure," says Piper.

Property owners should be putting external contractors under the microscope to determine whether the work they are doing is necessary and up to the required standard, says Piper.

"We believe there could be more vigilance in this area.

"Rather than work to their own contracts, Bayleys Property Services has put all our service providers on standard Bayleys contracts to ensure they deliver what they are paid to deliver. This protects our landlords and keeps costs down."

But Piper says it is essential important repair and maintenance work is done, particularly if undertakings have been given to tenants.

"If you want to retain or attract tenants you simply can't stop this work."

Piper says Bayleys Property Services' ability to "bundle up" the total insurable value of its portfolio of more than 200 commercial and industrial properties has resulted in savings of over 25 per cent for some of its property owners.

Substantial savings can also be made by negotiating an energy-supply deal for a large property portfolio.

Energy and insurance charges are tipped to drive up the opex in the near future, Piper adds.

The emissions trading scheme is expected to increase the costs faced by electricity generators, which will be passed on to end users.

And insurance brokers believe premiums will rise by between 20 and 30 per cent in the next 12 to 18 months.