What Sits Behind the Headline Rental in a New Development?
The correct comparison is not simply the rental per square metre. It is the total occupancy cost, the development specification and the operational value the new facility delivers.
When a company considers a new industrial or commercial development, one of the first questions is usually: what is the rental per square metre? That is understandable, but the net rental is only one part of the economics of occupation.
Start with the full cost of occupation
A meaningful comparison between a new development and an existing building should include the full recovery structure and the costs the occupier will carry in addition to the base net rental.
- Municipal rates and taxes
- Estimated operating costs
- Estate or park levies
- Security and common-area recoveries
- Electricity, water, refuse and sewer charges
- Parking and access control
- Office fit-out, partitioning and finishes
- IT, data and specialised installations
- PC or Tenant Installation allowances
- Approved variations during construction
The schedule of finishes can materially change the deal
A development proposal should clearly state what the developer is actually providing. Is the office delivered as a shell, a white box or fully fitted out? Are ceilings, flooring, lighting, air-conditioning, electrical points and partitioning included?
Where PC amounts or Tenant Installation allowances are used, the agreed values and their scope should be recorded clearly. The same applies to approved changes during construction: the parties should know how variations will be costed, authorised and recovered.
A new development can also deliver operational value
The other side of the equation is that a purpose-built facility can create benefits that do not appear in the headline rental alone.
- A facility designed around the occupier's actual requirements
- Efficient warehouse, office, yard and loading layouts
- Modern power, fire-protection and security systems
- Energy-efficient technology and building services
- Parking and staff facilities designed for the operation
- Potentially stronger location and logistics efficiencies
- A stronger corporate image and staff environment
- Potential long-term operating efficiencies
Location remains part of the cost equation
A site closer to customers, suppliers, labour pools or major transport routes may reduce travel time, transport expense and service delays. Those savings can be more important over a long lease than a small difference in rental between two properties.
The better question
Do not ask only, “What is the rent?” Ask, “What is the total occupancy cost — and what operational value does the property deliver?”
That is where a properly planned new development can make a great deal of commercial sense.