As we continue our tour through a basic lease the topic today can be a big subject when it comes to cost savings but it can be covered pretty quickly.

UTILITIES!

Utilities are handled one of two ways (typically).  One, the utility bill is part of the rent.  The landlord pays bill when it comes in every month.  This is part of a full-service lease.  Two, the tenant contracts separately with the utility provider and pays their own bill.  This is typical most retail leases and some office leases.

There is no better or worse way to do it.  Some tenants prefer to control their own utilities; others would rather just right one check every month instead of having to pay a separate utility bill.

Depending on the tenant and the type of HVAC systems, a considerable amount of saving can take place with full service utilities.

Utility systems are often set up because of the style of building.  For example, at the

Admiral Pointe-Medical Office Building in Farragut

Atrium, Admiral Pointe, Century Park I & III tenants are pay their own utility bills.  These buildings are two and three stories, respectively.  Over our 40 years of development we have found that tenants like having the ability to control their own systems and own hours.  It allows them to keep the utility bills down by instituting set-backs for non-work hours.  Most of they time these tenants are served by split-system, roof-top units. If a someone comes in to work on the weekend all they have to do is turn on the system in their section of the office.  This saves money in the long run.  However, it is very difficult to use a split-system on anything over three stories.

New, larger buildings have highly efficient HVAC systems

Larger (or taller) buildings are typically serviced by water source systems, cooling loops, chillers or VAV systems.  These highly efficient systems can cool large buildings at a rate 15-20% cheaper than a split-system.  They do have a draw back however; each system services a large area, therefore if a tenant has multiple shifts or does weekend work they have to cool the entire floor (or more) of the building and that can get expensive.

In many large buildings, with full service leases, tenants are charged an “after hours utility charge” of about $40 per hour if they use the systems after standard building hours.

Regarding water; in most building water is “commonly metered” meaning it is paid for by the landlord.  If there is a tenant that uses more than standard amounts of water (like a restaurant) they can be separately metered or have an increased rate to cover the increased usage.

Next week will be a market update…lots has been going on in Knoxville and commercial real estate in general lately.

As always, you can contact me at 865-584-3967 or jcazana@ciprop.com for questions or for more information.

Justin Cazana, CCIM