Rising electricity costs are creating a number of challenges for commercial property owners and managers who are already trying to contend with the country’s flailing economy.
Load shedding in particular is causing havoc for many.
Data has revealed that electricity costs, a square metre each month, have risen by 216.4% from 2008 to the first half of 2018, says FNB property economist John Loos.
The operating cost impact of these hikes has been “significant” for commercial property, especially retail property.
Electricity is the largest variable overhead that a business needs to factor in, with air-conditioning
being the biggest consideration, says Chad Shapiro, senior commercial broker and director at CTS Property Services. “I know of businesses that have left their air-cons on accidentally for extended periods, and have chosen to close their businesses because of astronomical charges incurred and not accounted for. “A number of retailers – specifically on street level and not in shopping malls – are trying to avoid turning on their aircons… ”
Self-sustainability for commercial properties is a pertinent issue, but carries a variety of complications for owners and managers. Shapiro says most newly developed buildings will have self-reticulation services, the cost of which is absorbed into the related building price at the time of build.
While the tax benefits offered for green buildings with a low carbon footprint is an advantage for landlords as well as tenants, infrastructure and set-up costs will be high.
“So the balance lies in whether to pay up front, or absorb the costs for rising municipal charges. “This raises the question as to whether companies feel confident in current business conditions… ”
Commercial property occupiers are “very aware” of rising energy costs and want to either lease or buy buildings that are “green rated” or energy efficient, says Mark Latham, managing director of Pam Golding Commercial Africa.
They also want self-sufficient buildings with back-up generators and water to ensure continuity during down times. Rising energy costs are also a factor in occupiers’ decisions to downsize.
“The trend to downsize is being driven by the need to reduce overall occupancy costs… Energy costs are a factor, however they are a small component of the overall occupancy cost.”
Detlef Struck and Kobus Conradie, partner commercial specialists for Lew Geffen Sotheby’s International Realty in the Winelands, say rising electricity prices alone have not yet had a high impact, but contribute to the biggest challenge – the total monthly cost to companies, which is rents or levies and utilities, including electricity. This is further affected by the declining economy.
Conradie says: “Although energy-efficient measures are installed in new-builds, I believe we will start to see significant energy-efficient measures implemented only in a few years as at the moment the installation costs of these systems are too high for most, especially smaller companies.”
Load shedding is currently the single biggest influencing factor for commercial property owners, especially in the long term, says Chris Cilliers, chief executive and principal of Lew Geffen in the Winelands. This is because it is discouraging both local and foreign investors.
“They are fully aware of the financial impact on a business when production is shut down regularly for hours at a time.” Furthermore, Cilliers says a growing number of commercial clients are contemplating leaving the country altogether due to rising costs and the unstable economic and political environment.
“These are very discouraging factors, however they do create opportunities for agents and purchasers since most of these clients have to sell their properties to be able to afford to move abroad, which often means properties can be bought at discounted prices as the sellers cannot wait for the market to recover.”