Industrial Operating Costs Basics
This guide will help you understand the component of the operating expenses of renting.
What Are Industrial Operating Expenses?
The landlord's method of recovering the cost to maintain and own their building is called operating expenses. While rental rates may drive profits, operating expenses are simply reimbursement for the landlord's operating costs. Operating expenses will be paid as part of the gross rent or additional rent, depending on the lease arrangement. For example, operating expenses are added to the NNN rental rate in a triple net lease.
Tenants typically pay their pro-rata portion of the total building operating expenses. This is based on how ample their space is relative to the building. Each tenant in a multi-tenant building will be responsible for a proportion of the total operating expenses. A single tenant building will typically have 100% of the total operating costs.
What Are Industrial Operating Expenses Included In?
Operating Expenses Are Made Up Of Three Major Items:
Property taxes
Insurance
Common Area Maintenance (CAM), fees
Common Area Maintenance (CAM) fees that tenants pay to the landlord to cover common areas' overhead costs are called Common Area Maintenance Fees. Common areas include spaces that all tenants share. These could include parking lots or landscaped areas. Industrial CAM expenses usually include common lighting areas, parking lots, irrigation water, maintenance of parking lots, and administrative fees.
What's Not Included?
Contrary to most office CAM fees industrial CAM expenses don't include electrical or janitorial costs. Because industrial users have different requirements, electrical costs in industrial properties are usually sub-metered by the tenant. For example, a manufacturer might run heavy machinery 24 hours per day and charge high electric bills, while a neighboring tenant may use the space to store their goods but may not need as much electricity.
Industrial CAM does not include Janitorial. Because industrial buildings are not like office buildings, they do not share common spaces such as lobbies or restrooms. As a result, industrial tenants are often required to hire their janitorial service.
Your operating expenses and CAM fees should be clearly stated in your lease to avoid confusion about what is included. An experienced tenant representation broker can help explain operating expenses and CAM costs and negotiate them in your next lease.
