Most office tenants recognise the concept of landlords charging a base rental, parking charges and then an extra variable amount for the building's operating expenses. Separate utility metering for calculating these operating expenses is commonplace in most commercial leases. However, the language contained&nbsp;within the lease agreements about these charges can sometimes be confusing, subject to interpretation and contain substantial financial risk. Here's what you need to know.



Usually, a ‘rate per square metre’ amount in a commercial lease is applied as an operating expense component built into the rental numbers. A tenant is then required to pay their pro-rata share of the operating expenses. Typically, the landlord estimates these operating expenses in advance.

In South Africa, electricity costs are the single biggest contributor to operating costs. These costs are also growing rapidly, oustripping any other operating costs. The office sector bears the heaviest increase and&nbsp;so we always advise our clients to be weary of&nbsp;committing to inefficient B-Grade spaces that appear to offer rental savings. While you may be saving on rental costs, over a five year period an electrically inefficient building will prove far more costly than its efficient, A-Grade counterparts.&nbsp;

As the tenant, you can control costs during lease negotiations by requesting a ceiling on certain operating costs. Your commercial landlord may also allow you to audit certain expense calculations so that it's clear they're fair and accurate. 

A poorly negotiated lease agreement can cost you as the tenant a significant amount of money over the term of an office lease. We recommend using the services a competent a property practitioner when formalising your leasing arrangement. Using a competent professional can go a long way in insuring that you mitigate any material risk.

Commercial Property Operating Costs

If you're a tenant, you may need to vacate your commercial premises before your lease has reached its full term. Unfortunately this situation usually causes problems for both landlords and tenants. In order to reduce some of the risks to both parties, we'd encourage you as a commercial tenant to maintain flexibility with your landlord by negotiating an option to sub-lease their premises. This means that no matter what happens in turbulent economic times, you can still cover yourself financially if you need to leave your commercial property.



It's important to realise that a commercial sublet arrangement still places the onus on you as the primary tenant to ensure all obligations under the lease are fulfilled. In other words, any proposed sub-tenant you get in to your premises should be creditworthy, financially sound and fit well with the existing tenant mix. Provided the sub-lessee conforms to the existing lease obligations while also adhering to property use permissions, your landlord should not unnecessarily withhold your right as a tenant to enter into a sub-lease arrangement.

An effective commercial property sub-lease arrangement can also leave your landlord in a more favourable position where there are two parties committed to fulfilling the financial obligations under the lease agreement instead of just one.

If you're looking to sublet your commercial property, using a qualified property practitioner can help you cover yourself financially by successfully negotiating a workable sub lease arrangement with your landlord. Need help?&nbsp;Contact us on info@blackpepperonline.co.za or on 083 261 2861.&nbsp;

Subletting Commercial Property

Office relocations can be an exciting time for any business. However, moving addresses may also bring up certain challenges. One of these is making sure that your new premises stay attractive to your staff, so that you are effectively able to retain them.



In our experience, most businesses fit into the well-known "80/20" principle, where approximately 20 per cent of moving costs are spent on office accommodation and 80 percent on salaries. &nbsp;In effect, office accommodation is relatively insignificant when compared with salaries and wages.

For this reason, moving offices could result in an increased rate of voluntary staff turnover. The trigger could be anything from long commutes, toll roads, congestion or lack of public transport.

If your office moving strategy makes your organisation less attractive to your high quality employees, the longer-term impacts of this talent drain could be significant. When contemplating moving to an office space that takes something away from your staff, &nbsp;it's important to balance it with a corresponding new benefit.

Our advice when deciding to move offices is to consider and involve staff in the decision making process. Forming a project team and including staff at various management levels can go a long way to achieving a positive outcome from a human resource perspective.

Office Relocation & Staff Retention

It's always a challenge for a business to match their operational requirements with suitable commercial property for them to operate in. If you're looking for new office or industrial property, you should carefully consider the following factors in order to be as productive and efficient as possible:
<ul>
 	<li><img class="size-medium wp-image-2363 alignright" src="http://blackpepperonline.co.za/wp-content/uploads/Buela-Park-3-300x212.jpg" alt="Slide 1" width="300" height="212">Lease and acquisition perspectives</li>
 	<li>Space and workspace efficiencies</li>
 	<li>Market pricing</li>
 	<li>Brand synergies</li>
 	<li>Location</li>
 	<li>Tenure</li>
 	<li>Footprint</li>
 	<li>Process and operational adjustments</li>
</ul>
As a business, you may consider relocating to new commercial space or establishing an entirely new location. In both cases, establish what market opportunities there are, and consider alternative scenarios. In this way, you'll formulate a rational business case for your management to discuss and approve.

When trying to find commercial property for your business, you may encounter several challenges, including:

<a href="http://blackpepperonline.co.za/wp-content/uploads/Buela-Park-2.jpg"><img class="size-medium wp-image-2362 alignright" src="http://blackpepperonline.co.za/wp-content/uploads/Buela-Park-2-300x211.jpg" alt="Slide 1" width="300" height="211"></a>
<ul>
 	<li>Excess space that won't be used</li>
 	<li>No break clauses were agreed to during lease negotiations</li>
 	<li>No future expansion or renovations are possible</li>
 	<li>The property may not accommodate a variable headcount if you're planning on expanding</li>
</ul>
Looking for potential commercial space should be done by developing alternative occupancy and footprint scenarios within a defined market area. For example, If you're operating in an area where it's difficult to attract a capable, competitive workforce, then your occupancy costs may be higher than other central business district spaces.

You should then measure the economic and non-economic impact of alternative scenarios, and create a business case for the optimal scenario.&nbsp;Understanding all of the cost levers can help you identify hidden opportunities to improve your use of space, consolidate operations, reduce costs, improve efficiencies, and align the property with business operations.

Partnerships with design and planning teams are vital in order to define workforce requirements and transition assumptions. If relocation is feasible, we can help you create a location strategy to help your company understand the optimal location in terms of how it will be used.

Are you looking for commercial space? We can help you with the process. Some of our recent clients include: MTN South Africa, Bosch Holdings, Analysys Mason, Heinz Foods, Invest in Africa, Bidpaperplus, Imperial Logistics, Barloworld and Unitrans. Contact us on 083 261 2861 to find out more.

Finding commercial space for your business

Tenant representation is the process of helping tenants to identify and align their strategic, financial and operational objectives for their commercial property requirements.

Whether you're looking to rent a commercial property, renew your lease, relocate to another property, or expand your business, tenant representation services as offered by property consultancies can be extremely helpful. In offering these services, a good property practitioner should offer an in-depth knowledge of the various rental markets, combined with strategic and relevant solutions.

Today tenant representation services should include:
<ul>
 	<li>Property strategy development</li>
 	<li>Management of the facilities development process to suit your specific needs</li>
 	<li>Demographic and centre of gravity studies</li>
 	<li>Market analysis</li>
 	<li>Cost of occupancy analyses</li>
 	<li>Negotiation with property stakeholders</li>
</ul>
By creating competition in the marketplace, particularly when dealing on behalf of a blue chip tenant, landlords are often pressured into offering favourable terms. With the support of our in-depth market knowledge and strategic problem-solving abilities, clients are able to effectively create and leverage opportunities in the marketplace to secure attractive transaction structures.

We find that if you're a blue chip company, you have the best chance of negotiating the most flexible deal that offers the most value - because the landlord knows you're able to pay your rent. If you're a tenant, you should use your commercial broker's relationships with landlords, brokers and current market information resources. Through this process, you have a better chance of getting lower rentals and lower overall costs associated with commercial property transactions.

Tenant representation services should also include a financial analysis where various options are considered. The main benefit of this is that you have an accurate budget for transactions and annual occupancy costs. You're also better able to control your lease structures.

If your commercial property broker has strong relationships with landlords, they'll have better insight into how far they are willing to negotiate. This means you know how far you can push the envelope in order to get the best deal.

At Black Pepper Properties our tenant representation services give you the following key benefits:
<ul>
 	<li>Cost-effective, flexible and functional commercial property solutions</li>
 	<li>Orchestrated competition among landlords in the marketplace (usually via a closed RFP process) by using our clients’ tenancy to achieve a competitive outcome</li>
 	<li>Accurate information and expert guidance to meet specific requirements</li>
</ul>
A well-informed property strategy will address both current and long-term requirements. A fully integrated tenant representation approach means you'll benefit from relevant, well-negotiated property solutions to achieve your specific business objectives.

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Tenant Representation Services

A Real Estate Investment Trust (REIT) is an internationally recognised investment structure geared for listed companies that own and manage rental properties. The main aim of REITs is to provide certainty with a property investment through a simple and clear tax structure. The structure is also globally standardised: currently, more than 25 countries in the world use similar REIT models.



REITs have many advantages for listed companies and investors - both local and abroad. Some of the more significant benefits include:

1. Benefits to the Listed Sector
<ul>
 	<li>South African REITs can deduct all distributions paid to shareholders as an expense.  If REITs pay out all distributable earnings to shareholders, the REIT will not incur tax.</li>
 	<li>South African REITs do not pay transfer duties or capital gains tax on the profits accrued from the sale of a property.</li>
</ul>
2. Benefits to Local Investors
<ul>
 	<li>Shareholders of a REIT do not pay Securities Transfer Tax (STT) on buying or selling REIT shares.</li>
 	<li>Investors receive gross distributions from a REIT without incurring the 15% dividend tax levied against the distribution.</li>
 	<li>REITs allow for net property rental income and provide investors an investment alike to direct ownership of the underlying property.  This happens if REITs deduct distributions paid to shareholders as an expense, which therefore means that the REIT pays all of its distributable earnings.</li>
</ul>
3. Benefits to International Investors
<ul>
 	<li>Because similar versions of the REIT model are used throughout the world, foreign investors understand and have confidence in the REIT model.  This confidence makes South African REITs a transparent and attractive opportunity to international investors.</li>
</ul>

A simple guide to understanding REITs in South Africa

Just days after the <a title="Growthpoint and Dimension Data: A Joint Venture" href="http://www.blackpepperonline.co.za/2013/07/growthpoint-dimension-datas-joint-venture/" target="_blank" rel="noopener noreferrer">strategic partnership between Growthpoint and Didata</a> was announced, the South African Council of Shopping Centres (SACSC) released a study highlighting the benefits that social media plays in the retail environment. This article goes further by acknowledging the potential opportunity for shopping centres to increase customer satisfaction by offering free Wi-Fi.

In line with this, the increasing trend with commercial landlords is to add value to their customers by providing efficient and reliable internet connectivity. Could this search for differentiation be a response to the long queue of commercial property funds waiting to list? While some property funds are promoting the “green revolution”, others are now embracing the tech revolution in the form of offering world class internet connectivity to their tenants.

In light of the SACSC study, this is good news for shopping centre tenants. While there has been some negative sentiment as a result of the long queue of funds waiting to list, this new move by property funds as a way to increase their value proposition might just be the hidden gem that silences the critics.

Internet connectivity as a commercial value proposition

Commercial property development company Growthpoint announced last week that it has entered into a joint venture with telecommunications giant Dimension Data.&nbsp;The five year deal allows Growthpoint to provide its commercial tenants with efficient and reliable high speed internet connectivity at reduced prices.

The Dimension Data/Growthpoint deal is the first partnership of its kind in South Africa where a commercial property company has teamed up with a service provider.&nbsp;Besides the obvious benefit of South African businesses now able to interact with international business more efficiently, the deal also means there is now increased potential for South African businesses to compete for business further afield in Africa.

International business communities have always viewed Africa as the &nbsp;elusive "pot of gold at the end of the rainbow", since there is enormous untapped commercial potential on the continent. The lack of infrastructure, however, makes Africa a challenging and complicated place to conduct business, as reliable internet access is only available in major &nbsp;cities via broadband.&nbsp; Three in ten people in Africa have access to the Internet and the benefit of increased Internet access is profound with a 10% increase in broadband resulting in a 1,38% increase in GDP.

Growthpoint, by providing superior internet connectivity, will help put its tenants on a level playing field with the rest of the world in competing for Africa’s business. The move also gives Growthpoint tenants an edge over other South African businesses for whom internet connectivity is less affordable.

Already considered a major hub in Africa, South Africa's improved internet connectivity courtesy of this joint venture is set to improve the the attractiveness of local companies both to other local businesses and to businesses abroad.

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<div></div>

Growthpoint and Dimension Data: A Joint Venture

When it comes to new commercial premises for your business, your broker will present you with a shortlist of potential site options after a detailed space assessment. Once you have this shortlist, you’ll need to evaluate each option – preferably with your broker - based on the proposed lease terms for each. In most cases, commercial property leases will comprise the following points that you’ll need to analyse carefully:

For each issue above, ask yourself the following questions:

Commercial Property Lease Term
<ul>
 	<li>How long do you want to lease a particular site for?</li>
 	<li>Would the proposed commercial or industrial site be considered strategic, in which case a longer lease would be optimal?</li>
 	<li>Are you expanding quickly and only need a short-term solution?</li>
</ul>
Rental Rates
<ul>
 	<li>Can you afford the monthly rental costs for each property? To get an idea of this, request an itemised list of all rental, operating expenses and contributions that may be levied over the lease term – and whether they’re quoted as net or gross figures.</li>
 	<li>Are the annual escalations on the commercial property affordable?</li>
 	<li>Are the quoted rental and escalation rates market related?</li>
</ul>
Deposit and surety requirements
<ul>
 	<li>Can you afford the costs or would they be an excessive burden to your business?</li>
 	<li>What are the repercussions if your business defaults on payments?</li>
 	<li>At what point would your deposit be returned or bank guarantee expire?</li>
 	<li>What are the terms for reinstatement of the commercial premises?</li>
</ul>
Renewal and purchase options
<ul>
 	<li>Do you have the right to sub-let the commercial premises?</li>
 	<li>If so, do you have written permission from the landlord?</li>
 	<li>Can you assign your lease if you sell your business to a third party?</li>
</ul>
Repairs and maintenance
<ul>
 	<li>Who is responsible for the repairs and maintenance of the commercial property over the lease term?</li>
 	<li>What are the landlord’s responsibilities in terms of fixtures and fittings as well as receiving all installations in good working order?</li>
 	<li>Will the landlord require you to pay for the structural insurance for the safeguarding of the property, buildings, infrastructure and all installations such as air conditioners and generators?</li>
 	<li>What are the implications should the entire commercial premises be destroyed?</li>
</ul>
Operations&nbsp;
<ul>
 	<li>Is the landlord aware of your business operations and whether these activities may be in contravention with local municipal regulations for the property?</li>
 	<li>Is the commercial property zoned for your daily operating activities?</li>
 	<li>Does the parking allocation support your requirement?</li>
</ul>
Option to purchase
<ul>
 	<li>Does the lease include an option to renew or an option to purchase?</li>
 	<li>At what point do these options have to be exercised?</li>
</ul>
Signage
<ul>
 	<li>Will the landlord permit signage on the commercial property?</li>
 	<li>What are the municipal restrictions for signage in the area?</li>
</ul>
In your search for a commercial space, remember to plan ahead and give yourself enough time to investigate, negotiate and ultimately relocate. Stay flexible unless you have a very specific requirement in terms of configuration or location. Above all, keep your options open as much as possible.

Contact Simon for further assistance with any commercial property requirements on 083 261 2861.

&nbsp;

Commercial property lease structures

As a landlord, securing a good deal when buying or leasing property is fundamental to achieving your investment goals. And the best way to secure a good deal is by using a commercial property broker.

But why is this?


Good commercial brokers maintain relationships with landlords, property managers and tenants, and also have knowledge of upcoming lease expiries, expansions or sub-lease opportunities. As a landlord, using a broker means you can tap into these relationships, as well as making use of their marketing tools to attract potential customers for a particular site.

Once they've identified opportunities for you, commercial property brokers will also do the necessary work required to conclude a property deal on your behalf. This includes tasks such as marketing, handling site visits, facilitating meetings and dealing with detailed contractual paperwork. In doing these tasks, they save the landlord hours of time and energy required to make the deal happen.

In addition, an experienced property broker will have dealt with many different clients, and so will have honed their skills through exposure to various transactional scenarios. Using a property broker therefore means you can harness this experience and skill to get an optimal result for your business in terms of your property investment.

In South Africa there is fierce competition for commercial stock, which means that deals can often be clouded by market noise&nbsp;or even&nbsp;bidding wars. This in turn&nbsp;can drive prices up and the deal's value down.&nbsp;Most commercial property brokers have a client network with property purchase, disposal or leasing opportunities.Thanks to this network, a commercial property broker can help you conclude an attractive deal without the market knowing about it – which is usually the best scenario for all parties involved.

&nbsp;

Why should landlords use commercial property brokers?

The idea of owning commercial property rather than leasing it continually comes up in discussion with tenants looking for commercial space - whether it's an office, showroom, factory or warehouse. However, there are several advantages to leasing commercial property that may well outweigh the benefits of ownership. In this article, we'll debate the some of the cases for both arguments.

Leasing commercial property offers you as the tenant greater flexibility because when the lease terminates, you have the option to move to newer, better-positioned premises. In most cases, commercial property leases in South Africa have annual escalations that are negotiated upfront with the landlord. Knowing what you'll pay upfront allows you to budget more accurately. It also helps you avoid the hassle and expense of having to set aside capital reserves for potential structural problems or destruction to the property and buildings.

Leasing commercial space may be a good option for your business in terms of freeing up capital in order to upgrade equipment or technologies, increase your staff compliment or even open another branch. If you were considering buying, high demand locations would be expensive and in most cases unattainable, while leasing in these areas may be better both from a flexibility and affordability perspective.

When it comes to tax, remember that all rental payments are tax deductible and are classified as operating expenses. Depending on the agreement with the landlord, some tenant installations including fixtures, fittings, dry walling and flooring can be depreciating improvements, which could reduce your business’s tax exposure.

Most of the disadvantages with leasing commercial property have to do with control of your work environment. For example, as your lease term progresses and the annual escalations kick up, a downturn in the market could leave you paying considerably above market rentals.

Another challenge is that you could have neighbouring tenants who do not comply with the rules of the property – and so noise, maintenance, cleanliness could all lead to a less attractive location for your business premises. Unless your landlord or property manager enforces the rules and regulations within your business park, this could become very frustrating.

When signing a lease, always be aware of ‘change of ownership’ clauses, which are these days fairly common. A new landlord may have a different vision for the business park on things such as redevelopment or renovations, which render the site unattractive for an extended period. Or, the landlord may want to maximise profit at the expense of quality and attractiveness of your premises.

Always keep these ideas in mind prior to committing to a new business address. Whichever option you choose, we would recommend using an experienced, qualified broker to assess various opportunities for your commercial property needs.

Leasing commercial property

Fairly often, prospective tenants are hesitant to call on a commercial property broker when looking to secure commercial spaces for their operations. Some mistakenly assume that the services offered are&nbsp;too&nbsp;expensive, or a favourable result could be achieved by merely calling a couple of boards attached to the fence of an office park.

Bear in mind that in the majority of cases,&nbsp;the landlord settles all commercial property brokers' fees.&nbsp;So in fact, a broker’s time to you as the tenant or buyer is free.

Here are a few reasons to have a broker assisting you with securing suitable, well priced premises:

Think of your broker as an informed advisory. After all, it's in their best interests to keep your proprietary information safe and secure. Honesty and a transparent approach are fundamental to building long-standing relationships and are the lifeblood for a commercial broking firm looking to secure a future pipeline of business. There will be significant time spent together on the phone, emailing, driving to sites, analysing paperwork and dealing with architects, engineers and builders - all of which is hopefully part of a rewarding process.

Market knowledge is one of the most important pillars in a successful relationship with a commercial property broker. Good agents know the going rates in their areas of focus and must have an ability to secure upcoming bargains that may not yet be in the public domain.

The commercial property sector is far more specialised than the residential sector and can therefore prove a little more challenging in terms of securing competitive, suitable commercial property opportunities in preferential locations. Managing resources and keeping and an ear to the ground are an integral part of a successful broker’s armoury.

Experienced brokers are able to assess an opportunity for possible pitfalls or challenges. For example, this may include when rental or escalation rates appear above market, common area contributions are out of synch, or possibly onerous lease clauses could be in play which may have a negative affect on your business.

Ultimately, a commercial property broker will save you time and money. Allow your appointed broker to manage the majority of the paperwork and part of the negotiations on your behalf. Your responsibility as the tenant is to come up with valid queries, assess the suitability of the space and make final approvals.

Why use a commercial property broker?

In South Africa, the commercial property market moves through various cycles, which vary in terms of classification and timing.

Longer commercial property cycles are referred to as construction cycles, and these occur on average every eighteen years. Interspersed between these long cycles are short-term or investment cycles that usually last between five to ten years.

Although it is difficult to forecast the timing of these property cycles accurately, vacancy rates across the various asset classes can be an important indicator for commercial property investors who are looking to predict the best time to buy or sell commercial property.

In general, the best time to purchase property is at the bottom of the cycle, which we are experiencing now.&nbsp;However, securing funding in these conditions can be a challenge because funders are hesitant to take on risk in a tougher economic climate - particularly from a development perspective.

The delivery of development stock late in the property cycle can also be dangerous, as these assets may only come to market once the property cycle is on a downward phase.

Interest rate cycles also play a vital role to the success or failure of property owners and investors alike. Increasing interest rate cycles especially can cause havoc within the property market. If you're a property holder, make sure that you avoid cash flow strains through tougher market conditions.

If you have any&nbsp;queries relating to investment property or commercial property funding contact Simon Black (083) 261 2861.

The Commercial Property Cycle in South Africa

There are many exciting opportunities for head office sites if your business is based in Johannesburg or greater Gauteng. These various sites are geared to accommodate either prospective tenants or owner-occupiers. At Black Pepper Properties, we&nbsp;work closely with a number of listed and private property funds who are looking for tenants to occupy their blue chip office addresses.

There are also a number of property developers equipped with zoned, serviced land, with a view to build new head office premises to each of their client’s specific requirements, for either lease or to ownership purposes (via freehold or sectional title schemes).

We're equipped to manage this process from start to finish. Once we've confirmed your office space requirements, we manage the tender process to ensure that you get competitive pricing and a high quality product in an optimal location.&nbsp;The participants that we recommend to develop your new head office premises all have significant development experience coupled with significant portfolios of past projects.&nbsp;We run the process in a closed ‘Request For Pricing’ (RFP) environment where vendors are aware of their competitors. This ultimately ensures a fair, transparent process to appointment.

Teaming up with experienced, creative interior architects and designers enables us to manage a comprehensive assessment of your office space requirements and specifications.&nbsp;Once we've defined the broad parameters, we incorporate your business’s unique brand characteristics and qualities to design and create a complimentary workspace atmosphere.&nbsp;We're also able to manage the procurement and timeous installation of all critical technical aspects to your operations, including access to broadband, telephonic portability and IT infrastructure.

If you're considering moving your head office address, we encourage you allow Black Pepper Properties to manage this process for you. We'll save you from a significant amount of the uncertainty and stress that's usually associated with a project of this importance and magnitude. Dealing with professional, experienced practitioners also frees up you and your staff to focus on core operating competencies.

For any office related enquiries contact Simon on (083) 261 2861.

Looking for New Head Office Premises?

Commercial property owners and tenants are becoming increasingly aware of rising operating costs, which have implications on business profitability. For example, South Africa has recently experienced significant increases in electricity prices. Although electricity supply is still relatively cheap in comparison to the rest of the world, consumers in a South African commercial property environment can't easily absorb the rate at which these costs have risen.

In addition to the rise in electricity costs, there have also been considerable escalations in municipal rates and taxes for commercial property over a similar period.

To put things into perspective, the average commercial property operating costs have effectively doubled since 2005 according to the IPD Income and Costs Digest. This equates to annual cost inflation of around 12% a year for the past six years up until 2011, which is significantly above the CPI over the same period.

Electricity is the most prevalent of these expenses, where rates grew from R4/m2 in 2005 to R12/m2 in 2011 - &nbsp;effectively tripling over six years. This is a tremendous adjustment to absorb.

As a result of these increases, commercial property investors are being forced to turn their attention to protecting their valuable income streams wherever possible and being cognisant of the benefits of&nbsp;&nbsp;financial management. At Black Pepper Properties, we're equipped to guide our clients on this through preferred partners such as Green Wave.

For assistance with assessing your operating cost exposure on commercial property, contact Simon (083) 261 2861.

Due to uncertainty around South Africa’s economic prospects&nbsp;-&nbsp;in particular the significant unemployment challenges coupled with the recent mining sector unrest - experienced South African property investors understand the importance of planning for projected future outcomes in these turbulent times.&nbsp;Beyond just planning six to twelve months ahead, however, successful property investment requires real skills to successfully formulate strategies for predicting long-term outcomes.
Scenario planning for property investors requires an understanding of a handful of fundamental pillars that ultimately determine future outcomes:
<ul>
 	<li>Enlightened political policies are a vital part of investor confidence. When governments provide stable environments where transparent, accountable and credible modes of interaction are encouraged and maintained, business thrives. In South Africa, political bureaucracy and local council inefficiencies are hampering much needed growth and development, in particular with respect to service delivery and rising property taxes.</li>
 	<li>Economic growth is dependent on direct foreign investment, robust local economic activity and a healthy, educated population with rising per capita incomes. Locally, real growth is proving elusive where high unemployment levels persist and HIV related illnesses compound our existing social issues. Recent union and strike action activity &nbsp;is also crippling the local economy and in turn hampering critical direct foreign investment.</li>
 	<li>Demand cycles need to be monitored and can be predicted via measurable indicators such as market demand, building plan approvals at local council, recent rental and sale pricing and investor return statistics – all of which also point to possible future trends.</li>
 	<li>Development costs associated with construction have a direct effect on the viability of development projects. Directly related to costs are the levels of market competition, productivity levels, the cost of capital, interest rate levels, equity return demands, pricing stability and any related long term financial positions.These factors need to be favourable to ensure development venture success.</li>
 	<li>Predicting and understanding consumer&nbsp;market trends is critical, because profits are made when demand and supply are matched via accurate space assessments in conjunction with relevant product supply. Property trends do not always coincide with demand for the various property types; for example, in most cases residential demand often lags behind that of industrial and office property through a market recovery. Developers need to ensure the timing of product to market coincides with demand cycles.</li>
</ul>
Scenario planning can only become meaningful if all of the variables above are correlated back to the recurring and fluctuating levels of economic&nbsp;activity that business experiences over long periods of&nbsp;time.

Scenario Planning for Property Investment

The current commercial property market conditions indicate that this is a "tenant market". But what does that mean? This is a market that favours the tenant in that rental rates are declining. This &nbsp;enables tenants to command cheaper rentals through negotiation.&nbsp;We'd advise you to familiarise yourself with rental and purchase options available in the market, and to assess the associated benefits of both.



For example, we're seeing that concluding a longer term lease can lead to lower initial rental rates and control annual escalation levels. In our experience, current bank funding criteria make the bulk of purchase opportunities unattractive to potential ‘owner-occupiers’, which in turn translates back to leasing being a more attractive option.

For any queries regarding commercial property transactions contact Simon (083) 261 2861.

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Commercial Property: Market Conditions

When it comes to commercial property, there are different lease structures available, all of which have different outcomes for the landlord and tenant. Two of the most common scenarios are illustrated above: a&nbsp;gross lease&nbsp;agreement, and a&nbsp;triple net fully recovering&nbsp;agreement.



In a gross lease scenario, the landlord takes over most of the management and responsibility for collections, and may well charge a premium for the service and convenience.

With a triple net lease agreement, the onus is on the tenant to manage the maintenance, rates and consumption costs associated with the premises or lettable area. This kind of lease may mean rental savings for the commercial tenant, but the downside is that these tasks take up significant time - and so the tenant may be distracted from their core competencies.

If you're a potential commercial tenant, we'd advise you to be aware of the pitfalls, challenges and opportunities inherent to each type of lease agreement.

Retaining the services of a commercial property professional is a good way to ensure that the potential property has been appropriately assessed from a suitability perspective and that you have the right type of lease agreement for your situation. Overall, you should take into account that with the high costs associated with moving premises, businesses are increasingly electing to renew leases in existing facilities.

If you're looking to renew your commercial lease, we can help with the renewal process in order to secure market-related pricing and fair lease terms.

For any queries contact Simon (083) 261 2861.
&nbsp;

Commercial Lease Renewal: Tenant Representation

Are you looking to purchase head office commercial premises for your business? There is certainly a level of prestige to owning a business address, particularly for a mature business that doesn't have significant fluctuations in terms of space requirements. The associated savings on commercial property rentals in the long term can be significant, provided that the investment is made in a prime location where property values are consistently improving.

Sectional title units within secure office parks are becoming an increasingly popular way of accessing the local commercial property market. This is mainly because the listed and larger private funds have made it challenging to purchase attractive freehold opportunities in blue chip locations. In these locations, existing opportunities are limited, and significant financial muscle is required to consistently make a success of commercial property acquisitions.

Most SMMEs and private businesses don't have a responsibility to external shareholders for frequent returns, for example via dividends. In these cases, all gross profits can be reinvested back into the property holdings. These investments can even be instituted as a means of retirement or pension savings for directors and employees – which gives participants an opportunity to manage their retirement wealth on a more direct platform.

Another advantage to owner-occupiers is that commercial property holdings can be used as collateral to secure funding. This provides scope for wealth creation, particularly where lengthy, significant lease commitments are in place. Funding for commercial property transactions can be secured on long-term fixed bond rates where forward repayment terms can be accurately forecasted.

For advice on property acquisitions and funding contact Simon (083) 261 2861.

The Benefits of Being an Owner-Occupier

While the European debt crisis threatens to push the global economy into recession, it also poses a challenge for South Africa in terms of boosting growth and creating jobs.

South Africa's economy growth is currently in the doldrums as manufacturing and mining output declines. Europe buys about a third of South Africa's manufactured goods, and, with their budgets now having been cut to ease the debt crisis, demand has dropped, which is in turn stifling any current prospects of meaningful GDP growth in South Africa.

South Africa's current economic climate also impacts the commercial and industrial property industry. This is because businesses have increasing ambitions to purchase operating premises in reaction to the low interest rate cycle currently in play both locally (with all time lows) and globally. However, purchasing commercial property in the current market conditions may prove shortsighted, because the possibility of higher inflation round the corner means that interest rates may well rise again. And, should the financial crisis in Europe escalate, there is risk of ‘capital flight’ where investors lose faith in emerging markets such as South Africa and invest their money elsewhere.

Without any likely immediate relief from the European debt crisis, business managers should simulate likely future financial scenarios before acquiring new premises, as this could hamper any potential future growth. This may mean renting instead of buying for the foreseeable future. While renting commercial space prevents the investment potential of buying it, there are advantages. These include having the flexibility to downscale as the debt crises plays out, and having the liquidity to quickly expand or relocate premises once Europe is on the recovery path.

In addition, any long-term lease agreement can be constructed to result in the tenant owning the premises by the time the lease terminates. Businesses should make sure they take all relevant factors into consideration before making a decision that could ultimately affect the longevity of their operations.

For any property related advice contact Simon (083) 261 2861.

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