Total costs of the warehouse space rental

When looking for the perfect warehouse space, the client receives offers from the developer with individual values defining, among others, rent and maintenance fees. However, because various types of methodologies are used when preparing such an offer, and not always the same cost items are included in the given fees, and the standards of individual spaces may significantly differ from each other, the comparison of offers received is not an easy task.

In order to finally answer the question which offer is the most advantageous for us, we must analyse all elements of the valuation

Below we have collected the most important information that has a significant impact on the total rental cost.

IMPACT OF RENTAL PERIOD ON FINANCIAL CONDITIONS

When we receive an offer for space rental, we will usually receive two price options: a three-year and five-year rental period. In most cases, the five-year variant will be more advantageous in terms of price, because the developer, while preparing the space for the client, must make the necessary adaptations the cost of which is included in the calculation of the rent. The longer the rental period, the expenditures are distributed over a larger number of months.

Things are different in the case of BTS warehouses, where the developer builds a warehouse specifically adapted to the needs of a particular tenant. For such projects, usually the minimum rental period is 10 years.

Developers very rarely decide to shorten the rental period to less than three years, and if they agree to such a solution, it is usually associated with the lack of additional discounts for the tenant.

HEADLINE RENT

The basic cost of renting a warehouse is rent. The market standard is its monthly payment in advance, according to a fixed amount calculated in euro per square metre of the warehouse and office space occupied. In addition, it is indexed every 12 months mostly on the basis of HICP (Harmonized Index of Consumer Prices) or the consumer price index introduced by the European Commission.

INFLATION

Over the recent year inflation has ben very low. Yet, the NBP forecast shows that the growth trend of consumer prices may return in the years to come.

When considering a long-term rental agreement, it should be remembered that the value of the headline rent is subject to indexation. For long-term contracts, the final rent may be significantly different from the one paid at the beginning of the rental period.

In the chart below, we present an example of a change in the amount of the headline rent in the event of a rise in inflation to around 5% in subsequent years.

EFFECTIVE RENT

In the offers received, very often apart from the value of the headline rent, the value of the so-called effective rent is provided. Effective rent is the average monthly rent for the entire rental period, including any incentives and discounts offered to the tenant by the developer.

What are the incentives offered by developers? These may include in particular:

• rent-free period,
• coverage of the costs of the move,
• partial or total coverage of the cost of space finishing for the needs of the tenant, and
• exemption from costs included in the service fee.

However, it should be remembered that rent-free months are not always accumulated at the beginning of the rental period, but they can be spread over the entire duration of the contract (e.g. 6 rent-free months for a three-year contract is 4 months with a 50% rent charge each year). Particularly in the case of business characterized by seasonality, the determination of rent-free months in the period of reduced income will allow to increase liquidity.

Asti costs

Developers are increasingly adapting to the needs of the tenant by offering space modification and obtaining appropriate permits needed to conduct a given business in the warehouse.

It applies primarily to tenants who want to run a production activity. Examples of modifications that MAXON clients have encountered:

• Adaptation to production needs including additional lighting of the space with daylight (12.5% in accordance with the Polish standard), ventilation, compressed air system, making foundations for heavy machinery, technological channels, or mounting of cranes
• Temperature control systems inside the warehouse or its parts
• Ventilation system enabling the operation of gas trucks
• Adaptation of the building for storage of dangerous goods (ADR), often including additional sprinkler systems, fire protection and increasing the fire resistance of the building

The costs of above standard tenant improvements (ASTI) can be spread over the entire contract term and settled on a rent basis.

Service fee and other operating costs

The service fee, like the rent, is payable in advance and determined in domestic currency. It is settled annually on the “open book” basis.

When deciding to rent a space, it is worth to carefully analyse the services included in the service fee and other operating costs the tenant will be charged with. This will allow you to avoid the risk of unexpected costs after signing a rental agreement (e.g. lowering the effective rent in the offer by including in additional costs the instalment for leasing warehouse lighting).

Example of operating costs distribution:

In service fee:

• Maintenance of outdoor areas – roads and greenery (snow removal, inspections, repairs)
• Physical protection of the facility
• Administrative expenses (taxes, local fees, legal services)
• Real property insurance
• Utilities’ costs of common areas
• Management costs

Additional costs:

• Utilities costs settled according to individual meter readings
• Costs of inspections and equipment maintenance
• Individual costs of the tenant (internet, phones).

Rental security

It usually takes the form of a bank guarantee or, more rarely, a deposit, in the amount of 3-6 monthly rent fees plus service fees and VAT. If the tenant is a newly established or local company, the parent company’s guarantee is important.

Insurance

The building insurance and developer’s civil liability insurance is usually included in the service fee. The tenant covers the cost of insurance in the scope of civil liability and own installations and equipment.

Utilities

Keeping the temperature of about 12 degrees Celsius in winter in an A-class building costs 10-40% of the annual rent. Depending on the type of heating, building standard, shape and “neighbourhood", heating costs can vary significantly between offers. This difference may be important, so it is worth paying special attention to the type of heating available in a given warehouse building and its energy efficiency.

Summary

We hope that the above tips will introduce to you the topic and will help you choose the best location for your company. Should you have additional questions, we encourage you to contact our employees and we will try to clarify all doubts.