Re-Leased Blog

Re-Leased Blog

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Best Practice Tips For Managing Operating Expenses (OPEX)

Re-Leased 21 March 2019

Outgoings is a general, industry term used to describe the recovery of money spent from the tenant for expenses that are associated with the day-to-day running (and maintenance) of a commercial property during the term of its lease. Or in other phrasing, outgoings are otherwise referred to as operating expenses – that is ultimately what it costs the landlord to occupy the building.

Managing operating expenses can be a complex and time-consuming process due to having to account for different portions of money paid by different tenants, so it’s clear why a number of industry reports show that almost half of property management professionals deem lowering operating costs a tough task.

There are many modern technology tools to manage operating expenses (or otherwise known as OPEX in some global regions), and it’s increasingly important to have all variables accounted for to ensure that everything outgoing is accounted for closely. Unfortunately for those who refuse to invest in technology, things like spreadsheets and calculators aren't going to cut it in today's quickly changing commercial real estate climate. Technology tools are no longer nice-to-haves – they're a requirement today.

While things such as CPI increases and other external economic variables affect the nature of operating expenses, nothing really changes in terms of how we look at operating expenses from afar – that is that they’re fundamentally the tenant paying its, quote-un-quote, fair share of what is costs to have the building open its doors every day.

We can look at it through more complex lenses, but ultimately it is as simple as ‘here's what it costs to run X building’. So clearly, for commercial property landlords, it’s crucial to control what it costs to run your buildings, and this is because what you’re selling is a square-metre product.

And further to the point of productising buildings, if you look at the cost of manufacturing a B2C product, for example, there’s not a lot different when you look at how landlords should view their buildings, which is essentially their sellable product. The operating costs (or OPEX) is the product costs of running the building, which may seem too much of a simplistic thought-process but it’s how the world’s best business owners view the bare bones of their revenue-driving business model.

So when you’re leasing space you are essentially trying to balance what the market will pay for the total occupancy cost up against what it costs to operate a building, in addition to what it costs to own the building. As a landlord, your profit is then contingent on what the market rent-rate is sitting at, and that can be tricky to navigate when actually crunching the numbers to arrive at your annual operating expenses figures.

We have covered the importance (and the challenges) of having no vacant buildings in our content, but as the landlord you have to remember that you’re paying for your owned spaces that aren’t leased, so that means you need to drive business-wide costs down so you don’t get financially hit by vacant spaces. That's imperative.

What commercial landlords need to do to make sure their properties are A+ investments is to know their leases back-to-front, so nothing is left to guess work. Details really do matter with operating expenses.

To summarise, here are the main things to be aware of when calculating and managing your operating expenses (this may differ per region and per asset class, but it's a good overarching baseline to draw upon):

  • Rates
  • Land tax
  • Building insurance
  • Building body corporate fees
  • Property management fees (if you’re outsourcing to commercial property management agencies)
  • Repairs

To see how Re-Leased manages operating expenses (OPEX) watch the video below:

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Up Next: Landlord Guide: What Are The Things To Look Out For With Commercial Property and Commercial Property Insurance? 

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