The cost to commercial property owners of setting reduced, ‘pragmatic’ rental rates for occupiers should be weighed against the cost of having to keep a commercial property vacant while waiting for more affluent tenants, says the Royal Institution of Chartered Surveyors (RICS).
The RICS, one of the leading professional bodies for land, property and construction, says that commercial property owners are being buffeted from three different ‘key forces: the challenging economic climate, the difficulty of borrowing, and the rising cost of having a property vacant.’
The third of these ‘forces’ has already been analysed in a survey jointly carried out by commercial property magazine Estates Gazette and vacant property managers SitexOrbis. Research found that, for those managing empty commercial properties, the top three concerns were security, loss of rental income and the empty property tax.
These findings are consistent with what the RICS labels ‘something of a vicious financial circle’, highlighting how owners seeking the best rentals are likely to need to invest in building upgrades and improvements. They point to escalating maintenance and utility bills, and the increased cost of insurance inspections, especially for owners of older commercial property premises. However, a lack of secure income, this lessens the likelihood of sufficient investment. Raising rents for those already in occupation is another way of obtaining finance but may potentially force existing tenants to seek alternative premises, says the RICS.
The need to carry out a ‘careful and detailed assessment of vacant costs’ is recommended, in order to determine the viability of refurbishment costs and to assist in deciding ‘how robust an owner can reasonably be when entering rent negotiations’.
The RICS advises that ‘at least until the economic weather is set a little fairer’, commercial property owners should adopt a ‘cost-effective approach’. This entails providing ‘value for money’ and ‘good customer service’ to help keep their buildings occupied and to ‘maintain investment value’. Although we’d like to think these offerings will be consistent no matter what the economic climate, there’s certainly reason enough to put more onus on them now more than ever.
