Occupancy costs or operating costs are a grouping of all the costs associated with maintaining a property. When leasing commercial space a tenant will pay their proportionate share of these costs dependent on the size of space they lease. For example in a 10,000sq.ft. multi-tenant strip mall, if the occupancy costs are $10psf, the total cost to operate the building for a year is $100,000. A 1,000sq.ft. tenant in said mall would pay $10,000 per year ($833.33/month) in occupancy costs. This combined with base rent form a tenant’s monthly gross rent.
In most leases the occupancy costs will change every year, as it is a budget, and is adjusted to cover actual costs. Meaning if it snows a lot in one year, a Landlord will bill back all tenants the amount over the initial budget, and possibly adjust the occupancy costs for the following year. The items included in occupancy costs will differ from building to building, it is important to understand what’s included in the quoted number. Typical items would be property taxes, building insurance, snow removal, repair and maintenance, common utilities (common lobbies), landscaping, property management, and utilities, most commonly sewer and water. It can include heat and electrical costs, but not always, so it is important for tenant’s to verify based on their use (retail, industrial and office) what items are included in occupancy costs.
This blog was provided by Josh Walchuk with ICR Commercial Real Estate.
For more information on commercial real estate, occupancy costs or operating costs, contact Josh at 306.664.6116 or email firstname.lastname@example.org