Understanding Occupancy Costs: A Key Factor in Property Decisions

In addition to rent and condominium fees, occupancy cost is a crucial factor to consider before establishing operations in a particular region

This calculation is essential for tenants looking to move into new spaces

By: SiiLA News

10/16/2023

The occupancy cost of commercial real estate goes well beyond just the monthly rent. It encompasses the total fixed expenses a tenant will incur to maintain their operations in a property, and this can vary significantly based on the property and the chosen location.

The main factors contributing to the occupancy cost include the rent, operating expenses or maintenance fees, and property taxes, known as IPTU in Brazil.

In the office real estate market, when we examine various regions, the operating expenses and property taxes show substantial variation between cities, and even within different areas of a given market under analysis.

For instance, focusing on high-end office spaces (often labeled as A+ and A), the average operating expenses per square foot range from R$12.74 in one location, such as Curitiba, to R$26.76 in another, like Rio de Janeiro. Property taxes exhibit similar disparities. The lowest IPTU value in the areas surveyed by SiiLA can be found in Curitiba, at R$3.43 per square foot, while it climbs to R$13.37 in São Paulo.

Now, turning our attention to the third component of the cost of occupancy - the rent - the asking prices also fluctuate considerably across different cities. In Rio de Janeiro, for example, the highest average asking price for office space is above $90 per square foot, whereas in the areas surveyed, the lowest rates are found in Porto Alegre, dipping below $60 per square foot.

Occupancy Costs Vary According to Building, City and Region

Graph showing occupancy costs in some regions in São Paulo. Source: Market Analytics

For a tenant considering the feasibility of setting up their operations in a specific building or area, it's crucial to be informed about these costs, as they will have a direct impact on the fixed monthly expenses of their occupancy.

If you're looking to lease office space in a city like São Paulo, for instance, you'll find regions with lower asking rents than others. However, the overall cost of occupancy can end up being higher due to property tax (IPTU) and operating expenses value.

Take Berrini, for instance, a Central Business District (CBD) area. The average asking rent here is R$82.72 per square meter, and when you factor in the condominium fee and property tax (IPTU), the total occupancy cost for a tenant comes to R$121.40 per square meter.

Now, in the Marginal Pinheiros area, you'll find newer office towers, many equipped with water recycling systems, smart elevators, and energy-efficient features, among other amenities that affect condominium expenses. The cost of occupancy in this area is R$94.88 per square meter. The average asking rent is R$65.46 per square meter, and when you add the IPTU and operating exepenses fees, the combined cost comes to $29.36 – which is actually lower than what you'd find in Berrini.

At SPOT, the premier platform for office spaces, coworking options, and warehouses for sale or lease, you can readily access information regarding rent, operating expenses fees, and IPTU for each property listing on their website. Visit spot.siila.com.br for more details.

Exploring Costs in Logistics Properties

Logistics developments have a dynamic similar to offices

When it comes to logistics properties, both operating expenses and property taxes also fluctuate based on the specific property and the region sought by a tenant. To illustrate, let's compare Cajamar in São Paulo with Extrema in Minas Gerais. São Paulo boasts the country's largest inventory of logistics properties. Here, the average asking rent is R$24.56 per square foot, yet the overall occupancy cost amounts to R$28.65 per square foot. This includes an average operating expenses of R$3.12 and an average property tax (IPTU) of R$0.97.

On the other hand, in Extrema (Minas Gerais), a region undergoing substantial development and set to welcome new logistics properties and expansions by year-end, the average asking rent is R$26 per square foot. However, the cost of occupancy rises to R$29.36 per square foot, with an average maintenance fee of R$3.36. Notably, thanks to tax incentives, many logistics properties in this region are exempt from property taxes.

These data are available to subscribers on the Market Analytics platform. Here, you can find information regarding the cost of occupancy, rent values, property taxes, and maintenance fees for both office and logistics properties across various regions in the United States.

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