Commercial building operational costs have increased at twice the rate of inflation and four times the rate of construction cost increases, according to the latest data from Turner & Townsend – meaning there’s even more reason for owners to look at sustainable design and energy saving technologies.
The analysis compared increases in the cost of rates, electricity, insurance, maintenance wages, cleaning and security with cost movements for the Consumer Price Index and cost of non-residential construction from Australian Bureau of Statistics data. It covered the major markets of Sydney, Melbourne, Brisbane, Perth and Adelaide.
Overall, operational expenses have risen by a whopping 58 per cent over the past decade, compared to a rise of 28 per cent in inflation and 16 per cent rise in non-residential construction costs.
“Primary factors driving cost increases are rates, electricity and insurance. Wages and cleaning costs have increased at inflation or just above, while security increased at less than inflation,” Turner & Townsend senior economist Gary Emmett said.
“Electricity costs are prone to spikes and troughs, increasing by 18 per cent in 2012 and then falling by two per cent in 2015-2016,” he said.
“Of all the items included, electricity was the most volatile with severe increases experienced in each region during the last decade, but not simultaneously.”
In both 2010 and 2012, spikes were particularly high across all five regions, and the last six months has seen costs throughout Australia escalating, he says.
“As a result of the national electricity market changes, including a transition to renewable energies, there is a high probability suppliers will continue to increase charges in the short term while new technologies and distribution systems are implemented.”
Volatility spurring sustainable design
The volatility of electricity prices means there is a greater requirement for sustainable designs.
“Building owner operators or building tenants should identify sustainable energy saving technologies to reduce power usage, and insist any new buildings install these technologies,” Mr Emmett said.
He said both tenants and landlords were now focusing on how to reduce operating expenses.
Stockland heeds the message
This is definitely a message Stockland has heard loud and clear.
The property heavyweight has just announced a $23.5 million investment to install solar across 10 of its retail centres in Queensland, NSW and Victoria, which it is calling “Australia’s largest ever property solar project”.
Comprising more than 39,000 panels in total, the installations are expected to generate a total of 17.2 gigawatt-hours of electricity a year.
“Investing in technology like solar energy is not only environmentally sustainable, it also makes good business sense,” Stockland managing director and chief executive Mark Steinert said.
“Our forecast average yield over a 10 year period is 11.6 per cent on capital invested, generating strong shared value for both our investors and our communities.”
Prior to the new investment, Stockland had invested $4.5 million in solar PV across four of its NSW shopping centres at Shellharbour, Wetherill Park, Nowra and Green Hills. The Green Hills installation will be expanded as part of the new tranche of projects.
Climate change likely to up insurance costs
Another line item that is has been increasing in cost is insurance, and the upwards trend is likely to continue.
“Insurance premiums are up 60 per cent nationally within the last 10 years, more than twice the increase in CPI,” Mr Emmett said.
“Climate change, higher fire and flood risks are likely to increase insurance premiums.”
Overall, operating cost increases across the states were fairly evenly spread, with Brisbane marginally higher – electricity costs have risen by 144 per cent there over the past 10 years compared with 114 per cent nationally.
Mr Emmett said that businesses needed to be mindful of the additional costs of building ownership, as costs typically spiral upwards.
“When considering where to locate, landlords and tenants are increasingly evaluating whole of life costs rather than up-front costs,” he said.