The answer may surprise you!
When a tenant chooses a commercial property, financially they are most concerned with the total cost of occupying the building (TOC).
They don’t really care if that cost is mainly rent or other costs. When comparing market rent, as a Registered Valuer, we compare the TOC of properties, not just the contract rent.
It is supply and demand that determines what TOC is market. The rising cost of rates and insurance tends to have little effect on the supply (in the short term) of commercial property available for rent.
It also doesn’t really affect tenant demand. Therefore, where the tenant pays outgoings, a rise in costs is likely to have a reducing effect of the market rent for the property. If the landlord pays outgoings, there is likely to be little impact at all. Sorry landlords!
However, over the long term, this effect of lowering rents, should see less commercial development occur, contracting supply and increasing rents.
