GlobeSt.com: Rising Occupancy Costs Require Landlords to "Get Creative"

October 10, 2022 – In addition to climbing rents, industrial tenants are faced with higher annual lease escalations, operating expenses and utilities as competition for space remains elevated, according to a new report from Newmark. The total cost to occupy warehouse space has increased 42.2% since 2019. Rent has been the biggest driver, but rent and non-rent expenses alike contributed significantly to the growth.

Rene Velasquez, Managing Director of Asset & Property Management, BKM Capital Partners, tells GlobeSt.com that security costs, in addition to inflation, are some of the main drivers for operating expense increases.

“Still, the market fundamentals for the multi-tenant industrial space continues to be strong,” Velasquez said. “To look after their tenants’ financial wellbeing, landlords must get creative in reducing operating costs, and the more proactive ones are managing controllable passthrough expenses to limit the impact to their tenants’ bottom lines.

“Lease escalations will continue to climb due to e-commerce as pent-up demand for small industrial space continues to outpace supply, which should help maintain rental rates and keep vacancies low. Furthermore, construction costs, as a result of supply chain disruptions, will make new construction projects difficult to get under way and keep inventory limited.”

Read the full GlobeSt.com article here.