SAPOA Operating Cost Report April 2017

Key findings:

  • For the year ended December 2016, all property operating costs equated to 34.4% of gross income. This is down 60bps from December 2015 but well off the highs of 2011 when a gross cost to income ratio of 37.5% was recorded at an all property level.
  • Of the three major sectors, industrial property was the only on to report an increase in its cost to income ratio – a 230bp increase to 32.0% over the twelve months to December 2016.
  • The office and retail property sectors both reported improvements on the previous December’s cost to income figures.
  • Municipal charges – comprised of rates and taxes, electricity and other utility charges – continues to drive the overall increase in costs. As a cost category, municipal charges accounted for 63% of total costs as at December 2016.
  • Over the years, municipal charges have increased at a significantly faster rate than the other cost categories – becoming a bigger slice of a bigger pie in the process.
  • On a sector level, industrial property’s municipal charges make up the largest percentage of total costs at 72.8% – followed by retail and office with 62.5% and 61.1% respectively.
  • The office sector currently has a higher weighting in repairs/maintenance/tenant installation with a contribution of 10.7% to the overall cost line – higher than retail & industrial.
  • Retail property currently has a higher weighting to the Management & Leasing Commission category.
  • Overall operating costs increased by R5.28sqm per month for the year ended December 2016. The biggest driver of this increase was Municipal Charges (+R4.8sqm). Municipal charges are comfortably the largest cost category at R33.34/sqm with the rest being roughly equally split between the other major cost categories.
  • As a percentage of gross income, retail property segments are seeing the highest level of operating costs on an aggregate sector level.
  • Small retail segments such as Community  (12 – 25k sqm) and Neighbourhood (5 – 12k sqm) centres are reporting levels in the low 40%’s – a function of higher vacancy rates and rental incomes that are growing slower than costs.
  • Prime offices are amongst the best placed segments with regards to operating costs as a percentage of gross income at 29.9%.

Read more here: SAPOA Operating Costs Report April 2017