Hidden Costs of Office Buildings
When evaluating office buildings, we always talk about unit rent figures. These figures are very important in the comparison of buildings. Users should not only look at the unit square meter rental price but also look at how much hidden costs affect the square meter price. When we make a financial comparison of the two buildings, it is seen that the buildings with low unit rental costs are much more expensive than the buildings that look expensive.
One of the most important issues in Turkey is the tax added to rent. The tax on leases can be withholding tax or VAT, depending on whether the owner is a real or legal entity. Withholding tax is the biggest expense item for users. The rate of withholding tax is 20% and it is an additional cost that cannot be ignored. For this reason, users prefer buildings subject to VAT, where they can receive invoices for the rents they pay. The net rent of the building subject to VAT is matched with the gross rent of the building subject to withholding tax.
Another important issue that leads to hidden costs in buildings is space efficiency. Space efficiency is simply the ratio of gross area to net area. In the Istanbul market, leases are based on gross area. Therefore, rent and operating costs are paid on the gross area. In other words, the user also pays rent for areas such as core and wet areas that they cannot pay their employees. As efficiency decreases, the cost of the building to the user increases. Users need to consider floor efficiency when renting.
Operating expenses in buildings are an important cost item for users. The fact that the operating costs of some buildings in the Central Business District are at the same level as the unit rents in Non-Central Business Districts is an issue that has recently come to the fore. As can be understood from this extreme example, operating costs are an issue that needs to be examined meticulously in leases. In addition, the service items to be received in return for the operating costs and those outside of these items are also among the factors that affect the hidden cost. In addition, the heating, cooling, and ventilation systems used in the building are also important factors that affect the expense. Systems that fail to provide floor-by-floor heating and cooling significantly increase the operational costs of companies working overtime. At this point, owners should not avoid the initial investment.
As in all metropolises, there is a parking problem in Istanbul. Parking has an important place in the hidden costs of companies. The number of free parking lots per unit area and the cost per vehicle of the surrounding parking lot also affect the cost of long-term leases.
The initial investment cost in the rented area, in other words, the way the owner delivers the rented area, also directly affects the rent figure. There are big differences between the cost to the user of a place delivered in screed concrete and areas where a certain amount of initial investment has been completed.
The presence or absence of social spaces open to common use in business centers is also one of the factors affecting the hidden cost. In particular, allocating large areas for spaces that users do not use regularly every day, such as conference halls and large meeting rooms, means paying rent for a space that sits empty for days. Social spaces such as gyms and dining halls have a similar effect on rent. The space to be allocated to such spaces and the cost of decorating these spaces affect the unit rent paid by users in a long-term lease.
When all these items are added up and calculated, sometimes the results are such that a building that seems to have a very high unit rent becomes much more economical than its competition in the medium term. Of course, the opposite is also true. When a building is selected based only on the unit rent figure without considering the details, it is inevitable to pay a high cost for low quality.
We recommend that users consider the issues listed above when making their location decisions.