Total Occupancy Costs Will Change Property

The commercial real estate market is changing. One need look no further than the rapidly evolving global economy to understand that markets no longer function as they did. Commercial property is no exception.

When faced with the ever-present prospect of change, a market needs to adapt. Very few sectors have been able to comfortably sustain their original modus operandi in the last handful of decades, with everything from how we pay for services to how we receive them in a constant state of flux.

A major change in how commercial real estate is sold in recent years has been the introduction of transparent total occupancy costs. Simply quoting rent doesn't cut it anymore - it is a long-established fact that low rent may not always translate to a low overall occupancy cost. In fact, costs taken into account include energy usage, management, human resources, depreciation, and other hidden overheads. A number of factors - energy efficiency, general construction upkeep, and care-taking, may not immediately present themselves to those looking to lease. For this reason, professionals have been finding peace-of-mind in assessing total occupancy cost deals prior to lease for years - and it remains a viable and cost-effective solution at large.

"The best way to describe total occupancy cost is achieving the optimum balance between [real estate] cost and business productivity," says Charles Tillett, director of corporate solutions at Jones Lang LaSalle, highlighting the high level of productivity demanded of staff when cost per workstation is a factor.

Another increasingly popular option is the managed office space. Delegating all responsibility to a corporate team, prospective leaseholders sign pay a fixed monthly fee, exempt from inflation, which includes all overheads and, in most cases, a bespoke fit-out. This option - a hybrid flexible solution - is an example of total occupancy cost coverage that's gaining traction fast.

Jonathan Weinbrenn, head of global corporate sales at property consultancy Search Office Space, said: "My department is dealing with an ever-increasing demand for flexible office space - office space with no or little requirement for capital costs, and where the tenant is totally in control of the on-going facilities costs."

The serviced office sector has been experiencing something of a boom in the last 20 years, as more businesses look to reap the benefits of more manageable outgoings.

"Getting down to cost per workstation is a much better 'language' to be talking to occupiers in - that's all a chief executive really wants to know," says Neil McLocklin, head of Cushman & Wakefield's EMEA (Europe, Middle East and Africa) business consulting group.

Jonathan Weinbrenn puts forward a compelling argument for the benefits of serviced spaces and total occupancy costs in the latest edition of the Commercial Real Estate Journal.