Understanding Commercial Investment Property Function and Lease Control

In large commercial or retail buildings under property management and facility management there are systems of monitoring and control that are worth understanding.  That is certainly the case if you are involved in leasing such an asset.

When you consider the way an investment building functions, it is a bit like a ‘big ship’.  It has people within, a structure, energy, communications, and a purpose.  The property manager has to keep the building functional, within a financial outgoings budget, and safe for occupants.

To put this in context the leasing manager or executive takes the physical aspects of the property together with the occupancy advantages and costs, and markets them to potential tenants.  On that basis the leasing executive must know what they are leasing, and how things work.  Negotiations for a lease can then occur.

Here are some of the main systems of building function that will be involved in a lease negotiation and tenant installation into a larger investment property:

  • Electrical systems – This will include the location of the tenant switchboards for energy supply and how the tenant will connect to the power grid in the building.  There will also be the requirement of paying for energy and how that will be costed and applied to each tenant.  Energy supply tariffs charged by the landlord should be matched to those that apply in the common power grid outside the property.
  • Hydraulic systems – This includes water supply to the tenant area (kitchens, toilets, and special areas), together with drainage, and stormwater control.  Any fitout design will take into account the location of the building services riser and how the plumbing for the tenant will integrate into it.
  • Fire safety services and systems – The building itself will need to comply with current and active building codes for a property of its type; it directly follows that the tenant fitout must also integrate into those safety systems.
  • Communication systems – These will include telephone, cable internet, fibre optics, antennas, and any other special communication system that a tenant may require in occupancy.  If the demands of the tenant are too complex on the cable risers, the tenant may need to rent space in the riser for their special needs.  This then becomes an extra rental that can be charged.
  • Security – Most tenants today require reasonable levels of security getting to and moving around within their tenancy.  In larger commercial offices you can have multiple security access areas within the one tenancy.  ‘Swipe cards’ and similar special access systems will be integrated into the tenant fitout design.  The cost of using the building security system and the hardware that comes with that could and should be an extra charge on the tenant.
  • Lighting – Lighting within the tenant area(s) should be energy efficient.  Most tenants today demand energy and lighting efficiency as part of occupation.  Landlords should ensure that their buildings are retrofitted with the lighting systems that provide a safe, cost effective, and energy efficient level of lighting.  The tenant would normally modify the landlords lighting system to suit fitout design.  That modification requires landlord consent.
  • Emergency power – Modern large buildings should have a system of emergency power to allow essential tenant power use to be controlled and protected in times of a major grid outage.  That doesn’t mean that the building should supply power to the tenant for extended periods of time, rather it says that the landlord should provide a system where a backup power system allows tenants to shut down essential systems in a controlled way when power goes out.  In that way the tenant will not lose critical data and information for running their business.  Backup power systems like this usually give tenants a couple of hours to run essential systems and shut them down in a controlled way.
  • Energy management – We all know that energy costs just keep going up.   Energy has a major impact on building running costs both for the landlord and for the tenant.  A modern commercial or retail building must have energy efficiencies to be attractive to tenants.  You can compare energy consumption across building types to ensure that your building to be leased is ‘economically attractive’ from an occupancy cost perspective.
  • Lifts and escalators – In a building of multiple floors, the function efficiency and costs to run lifts and escalators will be a major factor of outgoings and energy consumption.  Those buildings with a lot of people in occupation or visiting will place significant pressure on energy consumption.  Every time a lift moves it takes energy to start and energy to stop.  Add to that the expectations of building occupants and visitors to a building in getting to their floor efficiently, you have a special factor of building use to be managed.  Hi-rise buildings in major cities are impacted significantly with this issue.
  • Maintenance management – Tenants and visitors to a property expect maintenance to occur in an efficient and timely way.  Prestige office and retail buildings should have a special response team to get to repair and maintenance issues quickly and directly.  Occupant safety has a part to play in this issue.
  • Fitout standards and design requirements – Any tenancy in a quality building should be controlled in fitout design and installation.  The property should have a ‘fit out manual’ to help the tenant follow the rules within the fit out construction phase.

Having been involved in quite a few large leasing projects in major buildings, I have seen most of these things as active parts of any lease discussion and negotiation.  Tenants today want to know what a building will do for them in occupancy, and how expensive the outgoings for running the building will be.  Convenience, comfort, and cost effective occupancy are three big issues.  The leasing executive should know the answers and details about all of these systems.

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