Matt Cowley: Rents, rates and rising cost of doing business

OPINION: The two biggest costs for most businesses are staff and their building lease. Photo / File

OPINION

One of the biggest pain points for businesses is the rising cost of doing business.

The two biggest costs for most businesses are staff and their building lease.

When it comes to the former, we have heard from many of our chamber members that they support the council's rates increase for commercial properties, so the city can fix the rising home and renting costs that results in staff asking for more pay.

These rising costs are driven by the land supply shortage, which is limited by council's debt limits to fund the leading infrastructure. While we wait for a major review of local government's rudimentary funding tools, an immediate solution is to increase rates to pay down council's debt to enable more housing.

A handful of submissions from businesses to Tauranga City Council's recent Long Term Plan mentioned they cannot afford the proposed rates increase, and I feel for them. Small businesses make up more than 95 per cent of New Zealand's registered companies and are mostly run on incredibly small margins.

Sometimes, however, the council is seen as the public scapegoat for landlords who are taking advantage of the shortage of desirable commercial leases. But the reality is that council rates make up a tiny percentage of the overall leasing cost.

Most businesses are wise not to own their building. By leasing it from a landlord, the business can put their capital to better use.

For your average commercial tenancy, you would expect to pay rent and any operational costs that the landlord deals with on your behalf, such as power, building compliance and council rates.

Some businesses have told me stories where their rents have increased, but their landlords are not upgrading the building because they are looking to sweat the asset before selling the land.

I have also heard that landlords on some main streets have increased rents to move a tenant out, which they can do, but in doing so this increases the average rent so the neighbouring landlords increase their rents to match the new price.

It's a shame that some commercial landlords are taking advantage of the shortage of desirable commercial buildings by rising rents or not re-investing back into the buildings.

I have never heard of a business closing because the council rates increased, but plenty of businesses have closed because their landlord's rent increased too fast.

The Tauranga Chamber of Commerce will always take a strong stance and push back on the relentless rising costs of running a business as much as possible.

The business risk of staff asking for more pay to keep up with rising living costs far exceeds the small risk of rising council rates.

We have an opportunity with the Tauranga City Council Commissioners to try to address the land supply crisis. While this is happening, I hope landlords are developing long-term relationships with their tenants and are not making the most of a tight situation.

• Matt Cowley is the chief executive for Tauranga Chamber of Commerce