The hidden cost of occupancy

FALLING vacancy levels and rising rentals in desirable commercial nodes have recently focused attention on office expenses in South Africa. Unfortunately, those subject to rising costs don’t know the half of it!

According to an authoritative study by the Regus Group, hidden costs significantly inflate the real price office tenants have to pay, with rent accounting for just 50.1% of all costs.

The study into total occupancy costs (TOC) of workplaces was conducted in Paris and identified five contributors to TOC: Occupancy costs, installation, building services, business support and occupancy management.

Occupancy costs accounted for 59% of TOC. Rent and occupational and environmental taxes were the biggest items, accounting for 50.1% and 7.7% respectively.

Installation costs covered fit out and improvement (7.1%) and furniture and equipment (0.9%).

Building service costs amounted to 22% of TOC (largest contributors were security, cleaning and fire hazards at 9.5%, internal repair and maintenance at 4.2%, energy costs of 4% and external maintenance of 2.4%.

Business support costs totalled 9% with reception services at 3.5%, reprographics and transport at 1.4% each and telecommunications at 1.3%.

Occupancy management costs of 2% covered items such as facilities management (1.4%) and property and project management (0.3% each).

Joanne Bushell, Chief Executive of Regus Southern Africa, the region’s largest provider of flexible office solutions, notes: “Because of their diversity and dilution into several expense items, the office tenant rarely appreciates the full scope of these costs.

“Close scrutiny, however, reveals that expenses directly related to office building occupancy can represent between 5% and 10% of a company's turnover, and correspond to the second largest expenditure item. These costs are less important than wages, on average, but can make up nearly half of investments and a quarter of operating charges.

“The real impact of these costs on the general performance of companies is not realised because property management is rarely their core business.”

Internationally, this state of oblivion is changing in response to competitive pressures, the need for rigorous expense management and shareholder demands for optimum efficiency in all aspects of a business.

The methodology and data of the independent researchers of IPD France confirmed that the standard monthly invoice from Regus accurately reflects all TOC cost-drivers.

With the benefit of data from the study, a comparison was made between a conventional and an outsourced office solution based on an area of 550m². The case-study considered a workspace designed for 30 persons located in the highly desirable Eighth District of Paris.

The conventional solution generated a cost of €1528 per workstation per month versus a Regus TOC of €1370 – a 10% saving.

Joanne Bushell adds: “This cost saving, though significant, does not factor in several other benefits such as the flexibility of Regus solutions. You are not tied to long-term commitments. Adaptability is another key advantage. The Regus solution adapts as a business grows or contracts.

“The advantage of ready access to new technology at a time of rapid change is also overlooked along with on-the-spot back-up from our experts.

“This is why our scrutiny of the hidden cost of occupancy is such an eye-opener for our clients.”

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