Office Vacancies Hit Double-Digits; Lower OC Levies?

Office Vacancies Hit Double-Digits; Lower OC Levies?

National office vacancy rate has reached 11.7 per cent and may go higher – according to a report by the Property Council of Australia.

Offices across Melbourne, Sydney, and other capital cities have been severely impacted by wary workers as well as the completion of new office buildings.

Whilst on the one hand, The Age, has reported that: “the growing glut of empty space has prompted calls from landlords, city officials and governments for businesses to hasten employees’ return to work.” In a late night press conference on 3 February 2021, the Victorian Premier has paused what was to be the imminent return to work for up to 75% (due to new COVID-19 concerns).

 

What are the Implications For Office Rents, Commercial Owners Corporation Levies, and Outgoings?

Tenants in commercial owners corporations and offices often pay for the:

  • Rent;
  • Commercial Owners Corporation Levies / Contribution (to the Administrative Fund); and
  • Outgoing such as council rates, water, and electricity.

[Landlords in commercial owners corporations pay the levies that goes into the Maintenance Fund as they own the asset and are responsible to contribute to the maintenance of the asset.]

So, with greater vacancies, how can landlords make more commercial offices attractive to tenants and prospective tenants?

There’s already downwards pressure on commercial rents and a lot of incentives out there vying for tenants’ attention. How about commercial owners corporation levies?

We spoke with a commercial real estate agent from CBRE and he noted that commercial owners corporation levies along St Kilda Road had really increased in the last 3-5 years. His take was that commercial OC levies were typically ranging from $130 to $150 per sqm per annum – whereas a few years ago this would have been fathomable when levies were between $90 to $120 per sqm per year.

 

Typical Running Costs for a Typical Commercial Owners Corporation Management?

To better whether efficiencies to be gained, owners and Committees should start by reviewing the expenses of the commercial owners corporation. Below is an example of some running costs for a commercial owners corporation management:
 
Office Vacancies Hit Double-Digits Lower OC Levies

 

Comparing to figures to prior year and budget is good start for Committees but may often not tell the full story.

In the above example, we have highlighted some of the major and larger costs items – in total these items comprise 64% of the expenses for the commercial owners corporation. Committees, owners, and owners corporation managers would potentially make the most notable gains in these areas.

Cost saving initiatives that Committees might consider:

  • Insurance renewal – often insurance renewals in owners corporations and commercial owners corporations get left to the last minute. The certificate of currency or the Minutes of the last AGM will show the expiry date of the building’s current insurance policy. Committees should get on the front foot and discuss the renewal process (and how to ensure competitiveness) with the OC manager and/or insurance brokers.
  • Cleaning contract – cleaning in OC buildings is essential and this has certainly been highlighted by the unfolding COVID-19 pandemic. Owners corporations across Melbourne has certainly spent more funds than normal for added cleaning high touch surfaces such as lift buttons, hand rails, door handles and the like. Some Committees have elected to help off-set some of the costs by deferring other non-essential cleaning services such as the pressure cleaning of the concrete areas or window cleaning to keep that budgets in check.
  • Building management – the Committee should work with their OC manager to scope and best ascertain the needs of the building and owners when it comes to renewing building management.
  • Electricity – installing LED lights and solar panels are definitely cost saving and environmentally-friendly initiatives (there are also various government subsidies). Another option that has been common with commercial and office buildings across Melbourne has been to implemented sensors and switches for lights and air conditioning due to switch to working-from-home.

 

Need Help Reviewing the Operating Costs for Your Commercial Owners Corporation Management?

Due diligence and choosing carefully is important – have a read of this article for one example of where did things didn’t go right – Don’t Trust a One-man Band with Your Money (or Owners Corporation Management).

Lastly, Strata Management Consultants specialises in not only advising and guiding Committees on how to change commercial owners corporation management companies but have also carefully vetted every management company we work with. Find out more about the value of having a Strata Consultant working for you here, or feel free to get in touch on 1300 917 848 or via email at office@strataconsultants.com.au.

 

Office Vacancies Hit Double-Digits; Lower OC Levies? in Victoria? – Content Copyrighted 2020 by Strata Management Consultants

 

The contents of this article or website are only intended to provide a general overview of the topics discussed. The author of this article makes no representations as to the accuracy or completeness of any information and the information is not intended to constitute investment, legal or professional advice. You should seek professional advice before acting or relying on any of the content. This article does not contain references to any specific company, organisation or individual, unless expressly specified.

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