Coronavirus, war, rapidly increasing energy costs and the weakening of the forint. These are just some of the factors that have had a great impact on office rental costs in the past period. Companies’ costs are rising, and for now, there is no light at the end of the tunnel.
Fixed costs are also soaring
Due to the coronavirus, and more recently the fears of war and recession, office rents haven’t increased but rather decreased in the new contracts. Meanwhile, the costs of companies and entrepreneurs have risen significantly. How is it possible? – ingtalinghírek.hu rose the question.
As the rents are given everywhere in euros, which have risen by more than 20% since the beginning of the year, and companies get access to energy at market prices, it is not so hard to define the causes of the rising costs.
According to the portal, in Budapest, instead of the previously usual 3-4 EUR in high-end office buildings, the operating cost per 1 sqm has increased to 6-7 EUR. This is made up of overhead costs and the cost of services (reception, security, cleaning, maintenance and the like). Together with the weakening of the forint, the utility fee per sqm, which initially seemed to be negligible, at most around a thousand forints, often almost tripled in the course of a few months.
The costs of an average company could increase by HUF 2.5M/month
Taking the above factors into account and do not expect the euro to fall significantly by the end of this year, then the monthly costs of a company – renting a not very large area of 1,000 sqm – is increased by HUF 2-2.5 million in the blink of an eye. This is such an amount that can become significant in the budget of larger companies as well – as their costs multiply with their size.
This is a level of spending that is a serious trial for most companies, and only those can feel better off whose income is generated in dollars or euros.
FM Benchmarking IV analysis, issued by the National Association of Facilities Management and Building Management Services revealed that costs in facility operation increased by 27% compared to the data of two years ago. And this does not even include the energy price explosion experienced since March.
The cost of labour has also increased significantly. The price increase is significant in the areas of technical operation, cleaning, reception and security. As a result of the coronavirus, in many cases, facilities operators order a higher level of cleaning service in order to retain tenants, which also has additional costs, and even material prices have to be counted as a plus.
For buildings 5-10 years old, slightly lower costs can be expected
The age and quality classification of the office building can both influence the costs, the technical equipment, the level of comfort and the equipment used also matter. However, the research revealed that the expenses may be lower in the case of 5-10-year-old buildings.
Moving: non-trivial costs must also be taken into account
Although it is true that the total budget for renting an office usually accounts for about 10-15% of the expenses of a classic large company, during this cost-cutting attitude, there are fewer and fewer potential large tenants on the market who would move now.
In addition to the already listed reasons (exchange rate, energy costs), there are also cost elements whose growth is not trivial. The costs of materials and labour for maintenance and renovations have increased by two or three times, depending on how modern the given office is.
It is also worth considering the costs of office fit-out. In the rarest of cases does a company or a large corporation handle the personalization of the office space itself. This is typically done by subcontractors with the involvement of decorators, furniture makers, and IT specialists. This one-time cost element was not a big problem until tenants signed for 5-10 years. In many cases, this 200-300 EUR per sqm was included in the costs of the rent. However, during the pandemic, these costs exceeded 500 EUR, and today it is 600-700 EUR, according to ingahtalnhírek.hu.
Furthermore, with the increase in tenants’ needs (expensive design furniture, interior design specialities, flexible workstations, standing desks, phone rooms, cool meeting corners, leisure games (soccer, ping pong) and the like, as well as roof gardens and other, say, high-level IT needs), the prices can easily increase to around 1,000 EUR. And all of this can mean an additional cost of 1M EUR in the case of a not very large office space of 1,000 sqm.
This puts more pressure on the tenants, because the unique office spaces, services, and high-quality work environment listed above are becoming important recruiting tools.