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Rising municipal costs continue to beat down on commercial property owners

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Industrial property sector most affected by increasing municipal charges

Rising municipal costs continue to beat down on commercial property owners, with these charges accounting for more than 70% of total operating costs in some sectors.

The industrial property sector is the hardest hit, with 73.8% of its total costs going to rates and taxes, electricity and other metered charges such as water and City Improvement District charges, discloses the latest Operating Cost Report from the South African Property Owners Association (Sapoa).

For the retail and office property sector these municipal charges account for 64.6% and 60.8% of the total operating costs respectively. In 2018, following the publishing of the 2017 Operating Costs Report, Sapoa chief executive Neil Gopal expressed concern about the rate of increase of municipal charges, and called for a partnership between commercial property owners and local government.

“Sapoa members contribute significantly to the rates base, and we believe it to be in the interest of both ourselves and municipalities to partner on this matter. As a sector, commercial and industrial property wants to contribute in a positive way towards the efficient functioning of municipalities,” he said then. 

A year, and more municipal increases later, he says the organisation’s stance has not changed. Rates and taxes continue to be the second fastest growing operating cost for property owners and investors since 2007, with only electricity costs rising more quickly.

“Over the past decade rates and taxes have consistently increased at a faster rate than inflation, and have increasingly come under the microscope as landlords focus on preserving their net income in a challenging trading environment,” Gopal says.

Soft services like cleaning, security and gardens, are the second highest cost for commercial property owners. Picture: Siggy Nowak

According to the latest Sapoa figures, total operating costs increased by 12.1% in 2018, thanks to the growth in municipal charges. During the year these costs grew faster than any other operating cost. In 2005 municipal charges accounted for 44% of all operating costs.

At December 2018 this was measured at 63.4%. Overall operating costs increased by R6.20/m² in 2018. Of this, R4.42/m²2 was to municipal charges. Soft services, which include cleaning, gardens and security, grew to be the second largest cost category for all commercial property sectors last year.

This category saw a 10.5% increase a square metre. The report says the biggest drivers of this category’s growth were cleaning (12.1%) and security (9.5%).

      Sapoa reveals the breakdown of total operating costs per sector 


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