How are rent levels for your premises determined?
Akademiska Hus – a major HEI landlord
Colleges and universities are free to rent premises from whomever they want. Akademiska Hus has a market share of 62 per cent and is therefore one of the largest property owners for Swedish Higher Education Institutions (HEIs). But size is, of course, accompanied by responsibility – both for delivery to the customer and for development of the local rental market.
Fundamental price-setting principles for Akademiska Hus
Akademiska Hus operates in an open market and our rents are competitive. Rents are set the same way as at other property companies. This means that we weigh in the risk and costs associated, for example, with construction and management, in the same way as other property companies. We also take into account general market rent levels for the particular city, location, type of property and lease length. We encourage openness in negotiations with customers, and thanks to long experience and effective collaboration we can often help the customer to use premises as efficiently as possible.
Rent setting for new construction
For new construction we use a rental model that takes into account the size of the investment, the rental level in the local market, estimated costs of managing the property and risks related to owning the property.
New construction can require a large investment – more than what the negotiated rent is capable of financing. In these cases we divide the rent up into a basic rent and a rent supplement. The basic rent is the competitive market rent level and the rent supplement is intended to cover excess investment costs. This is particularly common in construction of special-purpose properties such as sophisticated laboratories.
Renegotiation of leases
Rents are renegotiated, in accordance with Swedish law governing such matters, based on a market rent level for the property calculated using available comparable properties and knowledge of the relevant market.
Internal rental arrangements at the centre of education
Akademiska Hus charges rent directly to the higher education institutions, which then rent the premises to their own departments. These departments are then charged rent, usually referred to as internal rent. The departments’ internal rent often also includes central local costs (e.g. common areas) and in some cases there are also supplementary charges for technology, security and custodial services. Consequently, the internal rent that departments pay per square metre may be higher than the price per square metre that Akademiska Hus has agreed with the centre of education.
Overview of the model in 2014
Rent-setting procedures at Akademiska Hus were reviewed in 2014, thereby ensuring that the rental model applied commercially competitive parameters, consistent rent-setting methods and procedures, and greater transparency regarding how rent setting works.
Regarding the parameters used in the rental model, some elements were reduced, including the standard costs for administration and operation, the standard risk assessment for vacancy at the end of the rental period and the cost of capital during construction, while the standard cost for maintenance was raised.