Mar 11, 2014 10:18:00 AM

Reducing Occupancy Costs - A Guide For Commercial Tenants

By Don Catalano

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It's likely that real estate occupancy cost is in your company's top three expense categories along with your cost of goods sold and what you spend on labor. Given that it's a big expense, it also gives you the opportunity to make a big difference in your bottom line. Here are a few ways that you can reduce your occupancy costs:

Turn Off the Lights

In many markets, gross leases are a thing of the past. Even if you have one, there's a good chance that it has a base year or expense stop provision. This means that you pay your own bills if they add up to more than a set amount. With a triple net lease, you're paying your own bills regardless of what they are.


Under these arrangements, every kilowatt-hour of power you can save goes right to your bottom line. Whether you put motion sensors on lights in lightly used areas of your spaces or just set up a policy where the last one out turns off the lights, no matter what, paying attention to your energy consumption can pay off. While you're at it, powering down unused computers and office equipment as well as optimizing your thermostat settings can lower your occupancy cost even more.

Get a Broker

Unless you're an expert in every market you occupy, working with a skilled tenant rep broker can also help you manage your occupancy cost. His market knowledge allows him to find every space -- including spaces that might not be "officially" on the market. He can also key you in to which spaces are priced well and which ones have lower operating costs. Since working with a broker won't cost you anywhere, there's no reason not to get some help.

 

Vacate Quickly

Just because you're paying for a space doesn't mean that you should use it. If a space has outlived its suitability for your business, you can't eliminate your responsibility to pay rent and cover any other occupancy cost items, but you can eliminate the costs that come with using the space. A vacant space consumes less power, less HVAC, and doesn't need support staff or coffee.


While you're at it, sublease it as quickly as possible. Sublease strategies work differently from the way that you would normally look at a space. With a sublease, you have a relatively short time left on the lease, and the impact of vacancy is much larger than the impact of settling for lower rent. For instance, if you have an office space that costs $36 per foot and has 24 months left on the lease, waiting an extra month to get an extra $1 per foot over two years doesn't make a lot of sense since you had to absorb $3 in occupancy cost just to have the space sit vacant for an extra month.

 

Lease Less

If you haven't adjusted your site selection parameters, it's time. While you can always lower occupancy cost by taking a smaller space, all other things being equal, that strategy is more suitable than ever. Given that your employees work from the road, work from home, and don't need big computers or filing cabinets full of paper, you can get away with much smaller spaces than ever before.

 

Here are a few other commercial occupancy articles:

7 Ways Corporate Tenants Can Cut Costs

What Factors into My Occupancy Costs?

Reduce Your Commercial Occupancy Costs

 

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Topics: "Occupancy Cost ", reducing occupancy costs, commercial real estate, Occupancy Costs

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Don Catalano

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