Commercial building operational costs exceed inflation
Operational costs for commercial buildings have increased at double the inflation rate over the last decade, and at four times the rate of construction cost increases, according to figures from Turner & Townsend.
The construction and project management company compared increases in the cost of rates, electricity, insurance, maintenance wages, cleaning and security for buildings in Sydney, Melbourne, Brisbane, Perth and Adelaide.
These costs were compared with the consumer price index (CPI) and the cost of non-residential construction from the Australian Bureau of Statistics data.
“Overall operational expense items have increased by 58 per cent during the last decade, whereas CPI inflation is up by 28 per cent and the cost of non-residential construction has risen by 16 per cent over the same time period,” says Gary Emmett, Turner & Townsend’s senior economist.
Emmett says 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.
Of all the expenses, electricity was the most “volatile” with “severe increases experienced in each region during the last decade, but not simultaneously”.
“As a result of the national electricity market changes, including a transition to renewable energies, there is a high probability that suppliers will continue to increase charges in the short term while new technologies and distribution systems are implemented.”
Rates have consistently increased at higher than the CPI in all regions over the past decade, Emmett adds.
“Higher council rates reflect a need to increase revenue. Average rate increases of around four per cent are currently below the ten-year average of 5.7 per cent. Weaker public sector wages growth and CPI growth rates may hold rate increases at similar levels within the next few years.”
Insurance premiums are up 60 per cent nationally over the last ten years, more than twice the increase in CPI.
“Climate change, higher fire and flood risks are likely to increase insurance premiums,” Emmett added.
Statistical analysis also reflects that operating cost increases across the states were fairly evenly spread, with Brisbane marginally higher. Electricity costs have risen by 144 per cent in Brisbane over the past ten years, compared to 114 per cent nationally.
“When considering where to locate, landlords and tenants are increasingly evaluating whole of life costs rather than up-front costs,” Emmett concludes.