. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Whether you’re a renter, landlord or real estate agent, when you look at a commercial property, what you need to quickly understand is occupancy costs and expenses and their relationship to the investment and tenure mix.

Occupancy costs and expenses can make or break the future of the tenants’ business and investment income for the owner. High or uncontrolled occupancy costs and expenses mean an unattractive investment; it is not a desirable fact when the property is going to be sold one day.

Occupancy costs and expenses will meet their own averages for a given property type in a particular area. So you have some consistency from which you can assess property performance across different locations and comparable properties. If a particular property has higher than average outgoing charges and therefore occupancy costs for tenants, then you must have an acceptable reason for it. Without a valid reason, the property will fail as an investment and net rents will fall. Tenants will not want to occupy space in a property that has a high occupancy cost for them.

This is the big reason why many tenants today are moving towards gross rents as a method of leasing; controls your known cost of occupancy over the term of the lease. When they put this type of rent with fixed rent reviews during the term of the lease, the tenant knows the costs that he must cover as the lease goes on. The tenant may be happy, but the landlord may not be. An ownership business plan and rental strategy is critical for this to work; particularly in complex commercial properties. The costs to manage a commercial property are considerably higher than other types of property. Strategy is everything.

Landlords who adopt gross rents for their building’s tenants need to be careful about spending and manage it well. While the tenant will be happy and know what costs they are doing, the owner will be affected by changes in expenses, which will be reflected in the net income or “bottom line”.

Occupancy costs and expenses are normally divided into controllable and uncontrollable groups. More particularly, uncontrollable occupancy costs will be those associated with legal expenses such as municipal fees, water fees, and land taxes. They are applied to the property based on the regulations and appraisals of the city council; therefore, the charges must be paid each year regardless.

It is the controllable expenses and the occupancy costs that will be manageable. This is where the property manager or owner must exercise due care and strategy. The goal is to bring controllable expenses and occupancy costs within acceptable averages for a similar type property in the local market. When you achieve this, the property will remain competitive in the local market. So you have happy tenants and a lower vacancy factor.

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