What do occupancy costs include

Calculating your occupancy costs correctly is important for managing the expenses of your company. Unfortunately, many companies underestimate their occupancy costs or forget to consider factors that contribute to the overall cost of occupying a commercial space.

To avoid making mistakes, be sure to consider the following when calculating your occupancy costs:. This is one checkbox that companies don't usually forget--the amount that is paid every month to occupy a commercial office space.

Although maintaining the common areas of your office building will fall on the shoulders of your property manager, your company is responsible for covering the costs of it.

What's included in your Common Area Maintenance or CAM fees may vary depending on your lease, but generally, things like garbage service, snow removal, parking lot maintenance and landscaping are among the costs. Keep in mind that CAM may fluctuate from month to month, depending on how your lease is structured.

It's better to estimate CAM high to leave wiggle room in your budget. Even though your landlord writes the final check to cover the property insurance for your building, you're responsible for paying a percentage of the bill. In most cases, the amount owed is based upon the amount of square footage your business occupies compared to the overall square footage of the building.

Like property insurance costs, property taxes are passed along to tenants, typically using the same formula that is employed to determine property insurance payments. General liability insurance is a must-have.

Not only is it necessary to protect your business, but in most cases, it's required as a term of lease agreement. But managers may need to challenge traditional assumptions: if customers no longer value the two-hour lunch, having a fancy restaurant nearby is irrelevant, while proximity to child care and health clubs is now important. By analyzing how and where sales are made and customer services delivered, however, management found that both new business development and sales were profoundly affected by branch location.

At the same time, local back-office administration was not location-sensitive, so it could be repositioned to submarkets with lower costs and better staff accessibility. Within the submarkets they choose, managers then must consider site and building selection factors. This requires more specific measures that blend business objectives, staff needs, and technical requirements with real estate options.

A prime site is usually at a prominent intersection with high visibility and easy access, while a secondary site is in the middle of a block or off a main road and is harder to find at least the first time. Class A buildings are new, first-class, well-equipped structures with built-in parking and services. Class B and C buildings are older or simpler, more functional and utilitarian, with few or no on-site services.

A recent Apgar and Company survey of U. Tighter analysis of building options and business requirements may suggest further cost trade-offs.

Shearson found, for example, that its ground-floor space cost two to five times as much as above-ground office space and could be moved in many cases without disturbing customer access and visibility.

After analyzing its occupancy cost history, the firm concluded by that it could lower its overall cost in many areas by trading down from primary site, class A buildings to secondary site, class B buildings within its chosen submarkets, while improving interior office functions and aesthetics for its clients and financial consultants. Clear definitions are critical but inordinately difficult because executives and staff alike hold subjective opinions about their offices.

A branch manager may pay lip service to cost reduction and efficiency only to lobby for a prime site, marble-clad building. Mathematical models can help in location analysis, but in its fundamentals the selection process remains more an art than a science. Among those who know their business well, location criteria may seem simple and obvious, but the reality is that these criteria are rarely codified.

Moreover, functional views among managers lead to conflict. Marketing favors area identity and building visibility; Finance focuses on costs and terms; Operations emphasizes morale and efficiency. Shearson was able to identify more prosaic requirements from focus groups and surveys of financial consultants who were concerned mainly about the basics: quick and easy access, frequent elevator service, attractive reception areas, clean restrooms, and nighttime security.

Layout drives the volume of space that accommodates corporate activities and the detailed choices of building selection, individual and support space uses, size, placement, furnishings, and finishes. Executives often think of layout as a technical and administrative concern rather than a managerial one, but cost control is lost when top management leaves such details to local managers or assumes that architects, builders, and other technicians in the design and construction process will be responsible for the bottom line.

Perhaps more important, layout decisions have broader implications for the way in which employees perform their jobs. If senior managers consider repositioning the company in a competitive market, they must participate in basic layout decisions.

Reducing layout-driven costs begins with a basic analysis of space requirements. Most large corporations rent more space than they need. For better operating efficiency and for profit improvement, companies must be able to match the size of each workspace to its operating use and relative cost. Achieving significant reductions in the amount of rentable space is a complex, difficult, and unorthodox management task—but it can be done with careful planning. The traditional approach to designing office layouts gives most companies more space than they need.

First, designers define a space envelope by multiplying the square-foot allowance per person by the number of projected occupants. The layout is then configured to fill this envelope, working around the constraints designed into the building.

Moreover, users apply intense pressure on corporate real estate planners to include ample expansion space. But because managers are not designers, and designers are not businesspeople, their dialogue may not link space-planning choices with profits and productivity. As a result, attempts to reduce occupied space often come too late; the excess costs have been irrevocably committed.

Turning this process around is analogous to zero-based financial budgeting. In the typical budget process, managers have learned that they can reduce costs by rethinking the need for each line item. Space budgets operate in a similar fashion but deal with square feet instead of money. Creating a cost-effective layout calls for minute attention to detail, with the goal of attaining a higher proportion of productive space, less circulation and core space, and much less square feet to rent or own.

Preparing a space budget requires four steps: categorizing the current space, measuring each space use, sizing the required uses, and placing them in an optimum layout.

At Shearson, support and storage space consumed a much higher proportion of usable area than management had assumed. Moreover, demand for support and storage space was growing at a faster rate than it was for individual workspace.

Space Budget Preparing a space budget enables companies to rethink each line item. The goal is to adjust the size of each workspace to match its use, value, and cost.

By analyzing each line item, it was clear that costly square footage was tied up by a huge volume of files and forms. Categorizing space also helps in evaluating the need for separate rooms, which increase build-out costs and may impede productivity.

The space budget for individual workspace is driven mainly by the ratio of private offices to workstations. Companies with different types of office activities must consider trade-offs such as operating and administrative versus customer-serving space and production versus meeting space.

Costly square footage is often tied up by a huge volume of files and forms. Measuring is the second stage in preparing a space budget. Measuring quantifies square feet, linear feet, and cubic feet for each space use. Basic measurement can be done by anyone with a tape measure and a systematic method for tracking how space is used. The critical distinction is between rentable and usable area. Accurate measurement can save rent because some landlords profit handsomely from poorly measured space that inflates the area under lease.

Measurement that accounts for space in terms of its usability for productive purposes and its cost relative to user value can distinguish the few truly cost-effective buildings from all others. Sizing each use is the heart of space budgeting and control.

In this step, companies should not rely on global standards, industry benchmarks, or their own past space utilization. Rather, they should look at each category afresh, because there are likely to be economies in every one. Using wall space instead of the floor for equipment and storage is one example.

Improving inventory management and supply systems to purge dead files and shorten reorder cycles is another. And in support areas, a line-by-line assessment reveals possibilities for consolidating uses to minimize square footage work surface with storage under and over and multiplying uses to leverage space, such as combining lunch, meeting, and training needs in one room.

The most troublesome categories to size, even for building professionals, are circulation and core space. Like corporate overhead, they are expensive and, once set, very difficult to change.

Circulation spaces, the corridors and aisles, are the arteries and veins of an office. Traditional planning tends to fill in aisle space above minimum requirements because other design criteria easily obscure its basic purpose: direct and easy entry, egress, and movement from one workspace or section to another.

Minimizing corridor and aisle space should result from efficient placement of all other uses as well as meeting building code requirements. By budgeting for circulation as a function of all other space sizes and understanding the cause-and-effect relationships between the flow of work and the flow of people, circulation can be put in its proper perspective as a derivative category rather than a driver. The result is a circulation pattern consuming less rentable space yet more in line with corporate productivity and profit objectives.

The core factor is the portion of rentable square feet allocated for lobbies, elevators, restrooms, mechanical rooms, and the like. Sample 2.

Sample 3. Occupancy Costs means those costs associated with occupying eligible space including custodial , utility , maintenance and other costs as outlined in the occupancy costs formula. Occupancy Costs means expenses related to the acquisition , maintenance , and financing of a property, or rental of property necessary for service.

Examples of Occupancy Costs in a sentence Tenant Occupancy Costs in this calculation are the amounts paid to the Company, including minimum rents, percentage rents and recoverable expenditures, which consist primarily of property operating expenses, real estate taxes and repair and maintenance expenditures.