[fa icon="calendar"] 12.14.2016 / by Wallace Dostal
Commercial property owners are constantly under pressure to reduce costs and stretch their shoestring budgets as far as they can go. This is increasingly difficult if you are unable to accurately predict future operating and maintenance costs.
To help you budget for the future, here are some of the biggest costs of maintaining your retail property:
Cleaning and Maintenance
Common area maintenance (CAM) fees are usually divided between the landlord and the tenant. The exact definition of these costs can be broad or narrow, depending on the lease agreement, and typically include:
- Security costs
- Administrative costs
Although CAM fees are often split between the landlord and tenant, the exact amount that each party will pay depends on how it is spelled out in the lease agreement.
Unless it is expressly identified in the lease, the landlord is most often solely responsible for any repairs or maintenance done to the building structure. This includes any modifications to the building's foundation, walls, roofs and floor structures. This does not include heating, plumbing, partition walls, stairways or windows.
Property taxes are one of your biggest expenses as a property owner. In some cases, depending on the lease arrangement, you can pass some of this expense on to the tenant. However, the landlord will be responsible for at least a portion of the property taxes in most situations.
If you decide to hire a property management company (which you probably will at some point) to help out with the paperwork, you’ll have to pay them. Just be aware that you get what you pay for, so don’t automatically choose the lowest cost provider.
Insurance costs will vary depending on the type of business that is occupying the property. For example, a restaurant that has stoves, lots of staff and food products that can spoil will have higher insurance premiums than a clothing store with a comparatively smaller staff. Other factors that can influence insurance costs include:
- Construction - Buildings made of brick and other fire resistant materials generally cost less to insure.
- Occupants - The type of business and the associated risks can play a big part in insurance costs. For example, restaurants have higher premiums than most other businesses.
- Protection - Properties that are able to mitigate risks by having safety precautions in place (fire alarms, sprinkler systems, etc.) may have lower insurance rates.
- Location - Buildings located in high crime areas or next to chemical plants will typically cost more to insure.
Knowing the Costs
The long-term costs of operating a retail center go far beyond the initial costs of design and construction. Over time, the costs of operating and maintaining the facility will increase as the building ages. Property owners need to be aware of, and prepared for, the maintenance, repairs and insurance costs that go along with owning a building.