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OSCAR was first published in 1983 and this is the 26th edition in the annual series. We are grateful to our in-house clients and the important external contributors and their managing agents who have provided data to enable us to carry out our analysis.
Citation preview
Service Charge Analysis for Offices
OfficeOSCAR2009
Office OSCAR 2009 – Service Charge Analysis for Offices
� �
I am delighted to be asked to write the
Foreword for this the 26th annual edition
of Office OSCAR. Hermes Real Estate
Investment Management has been a regular
contributor of data to Office OSCAR during
this period and we place great store on our
tenants being able to access information on
service charge costs. In this respect Office
OSCAR provides the market leading service
charge benchmarking tool for tenants and
landlords alike.
The introduction of the Royal Institution of
Chartered Surveyors’ Service Charge Code
provides a greater uniformity in the way in
which service charges are presented and I
look forward to the updated Code which is
due to be published in the Autumn 2011.
I trust you will find Office OSCAR provides
Foreword Contents
Data Contributors
In addition to the contributions of data from many clients of Jones Lang LaSalle, we are particularly grateful to the following organisations for their major contribution to the data used in the production of Office OSCAR.
Introduction and Background
Executive summary 4
The database 5
The sample structure 6
National average component service charges 10
Total service charge by building location and by building size 18
Looking to the future �9
Definition of terms 31
Geographical areas ��
With thanks also to Broadgate Estates.
you with useful information. A significant
effort has been made in its publication by
the Jones Lang LaSalle team. I would like to
thank on their behalf the contributors for the
information and support they have provided.
Chris TaylorCEO Hermes Real Estate Investment Management
Office OSCAR 2009 – Service Charge Analysis for Offices
4 5
Introduction and Background
OSCAR was first published in 1983 and this is the 26th edition in the annual series. We are grateful to our in-house clients and the important external contributors and their managing agents who have provided data to enable us to carry out our analysis.
On the 1st April 2007 the Royal Institution of Chartered Surveyors Service Charge Code was introduced. The service charge expenditure categories within the Code are a direct reflection of those contained within the OSCAR reports produced prior to that date. Our analysis indicates that the large majority of major landlords and their agents have embraced the requirements of the Code, which has provided a more uniform presentation of service charge data to occupational tenants. We are currently working with the RICS in reviewing the Code and look forward to commenting further in our next publication.
The data analysis within OSCAR primarily observes the influence of building location, size and air-conditioning upon cost. However, other important variables influence cost such as hours of operation, levels of security, reception services, number of lifts and in particular the qualitative standards of management. These factors are the primary drivers that should be taken into account when benchmarking against the spread of values displayed in this report.
This year’s principal findings
• Averagecostsofrunningairconditionedbuildingsare£6.70persqfoot,adecreaseof3.5%overthepreviousyear.Theaveragecostofrunninganonairconditionedbuildingroseto£5.77persqfoot,anincreaseof5.4%fromthepreviousyear.
• Thedifferentialinrunningcostsbetweenairconditionedandnonairconditionedbuildingshasnarrowedthisyearto86%fromcirca80%inthe previous five years of the survey. This is the highest ratio since we instigatedtheOSCARanalysisin1983.Thetrendthatwehighlightedlastyearoflandlordshavingtoaddressobsolescenceinolderairconditionedstockiscontinuing.Anexampleofthisisthesustained,abovetherateofinflation increase in expenditure on Mechanical and Electrical services on nonairconditionedproperties.
• Thereisacontinuingtrendfortenantstorequirebetterqualityofserviceinnonairconditionedproperties,bringingthestandardsclosertothosereceivedinairconditionedbuildings,whichishighlightedintheproportionateincreaseinspendinmanyheadsofexpenditure.
• ThehighestcostincreaseinairconditionedbuildingsisinrespectofMechanical and Electrical (10.3%). We commented last year on the unusuallylargeincreaseinsitemanagementresourcecosts;thisyearthefigures have decreased and are in line with the trend analysis we have experiencedinpreviousyears.
• ThelargestincreasesinspendonnonairconditionedbuildingsareforMechanical and Electrical (28.1%) and electricity (17.7%).
• We have included an analysis of the IPD office rental index mapped against service charge changes. It is interesting to note that the rates ofchangeofairconditionedservicechargeshavelargelymirroredtheoffice index over the last 4 years, whilst the service charge spend for nonairconditionedspacehasbeensubstantiallyinexcessoftherentalindex levels. We shall keep this under review but it could be argued that in the increasingly competitive office rental market, landlords of modern air conditioned space were keen to keep their office service charges as competitiveaspossible.Howeverinthecaseofoldernonairconditionedstock,landlords,becauseoftheobsolescencepointdetailedearlier,havehadtoundertakeessentialservicechargeexpenditureoverandaboveinflation to ensure buildings provide an acceptable level of service.
Executive summary The database
The database is split into two property types, air-conditioned and non air-conditioned. The ‘Definition of terms’ describes the principal cost categories and geographical regions defines where the properties are situated.
Insurance
Insurance costs are excluded from OSCAR for two reasons:
• firstly, insurance premiums now rarely feature within service charges and are typically direct-charged to tenants instead.
• secondly, there is little point comparing insurance costs without having regard to the breadth and quality of cover, together with the nature of commission payments.
Interest
To facilitate level benchmarking, we have elected to disregard any interest receipts included within the service charge reconciliations contributed to the dataset.
Exceptional Expenditure
Exceptional Expenditure is excluded, allowing like-for-like comparison of base-level service charge costs.
Benchmarking Approach
Office OSCAR is intended principally to assist in benchmarking and forecasting service charge costs. However, buildings differ substantially in terms of construction, age, layout, gross to net floor area ratio, staffing and security levels, hours of operation and standards of maintenance and management. All these factors must be taken into account when considering the data within OSCAR. To assist, we provide what may be regarded as an acceptable range in service charge costs. This is done by quoting upper and lower limits that capture the middle 50% of sample values. However, in certain circumstances, there may be good reason for bona fide costs to fall outside these boundaries.
Statistical technique
• Theupperandlowerlimitsquotedarecalculatedatplusandminus0.7standarddeviationsfromthearithmeticmeans.Thisisdesignedtocapturethemiddle50%ofvalues,assumingthatthedatahasnormaldistribution.
Conventions
• In line with market practice, OSCAR data is quoted excluding VAT.• The costs do not include the direct recharges borne by occupiers in
relation to their own demised areas.
Roundings
Rounding differences may occur due to the values published in Office OSCAR being displayed to a restrictive number of decimal places.
Office OSCAR 2009 – Service Charge Analysis for Offices
6 7
Chart 1
Building location profile - year end 2008 A/C Buildings Non A/C Buildings All Buildings
Location Change Change Change
2008 2007 from 2007 2008 2007 from 2007 2008 2007 from 2007
City and Docklands 46 26% 39 30% 7 12 13% 9 14% 3 58 22% 48 24% 10
West End 47 26% 42 32% 5 24 27% 18 27% 6 71 26% 60 30% 11
Greater London 12 7% 8 6% 4 8 9% 4 6% 4 20 7% 12 6% 8
South East 30 17% 15 11% 15 13 15% 7 11% 6 43 16% 22 11% 21
Midlands 17 9% 11 8% 6 12 13% 11 17% 1 29 11% 22 11% 7
Outer Regions 27 15% 17 13% 10 20 22% 17 26% 3 47 18% 34 17% 13
179 100% 132 100% 47 89 100% 66 100% 23 268 100% 198 100% 70
The sample structure
The 2009 OSCAR database contains:• �68 buildings• 179 air-conditioned buildings• 89 non air-conditioned buildings
• Increase in sample size of 70 properties (an increase of 35%)• Largest increase in sample is for buildings in the South East and those
under 25,000 sq ft.• Fewer buildings are over 30 years old and more are in the 20-29 year range
LocationCity & Docklands West End Greater London South East Midlands Outer Regions
Samp
le Si
ze
Chart 2
Building location profile by %
5
10
15
20
25
50
30
35
40
45
0
2008 - A/C
2007 - A/C
2008 - Non A/C
2007 - Non A/C
Chart 3
Building size profile - year end 2008
A/C Buildings Non A/C Buildings All Buildings
Change Change Change Sq ft 2008 2007 from 2007 2008 2007 from 2007 2008 2007 from 2007
�4,999 sq ft and under �8 �1% 19 14% 19 45 51% �6 �9% 19 8� �1% 45 ��% �8
25,000 - 39,999 sq ft 33 18% 24 18% 9 16 18% 14 21% 2 49 18% 38 19% 11
40,000 - 99,999 sq ft 59 33% 46 35% 13 19 21% 21 32% -2 78 29% 67 34% 11
100,000 sq ft and above 49 27% 43 33% 6 9 10% 5 8% 4 58 22% 48 24% 10
179 100% 132 100% 47 89 100% 66 100% 23 268 100% 198 100% 70
Building Size24,999 sq ft and under 25,000 - 39,999 sq ft 40,000 - 99,999 sq ft 100,000 sq ft and above
Samp
le Si
ze
Chart 4
Building size profile by %
10
20
70
60
50
30
40
0
2008 - A/C
2007 - A/C
2008 - Non A/C
2007 - Non A/C
Office OSCAR 2009 – Service Charge Analysis for Offices
8 9
Chart 5
Building age profile - year end 2008
A/C Buildings Non A/C Buildings All Buildings
Change Change ChangeAge 2008 2007 from 2007 2008 2007 from 2007 2008 2007 from 2007
0 - 9 Years 65 36% 52 39% 13 15 17% 8 12% 7 80 30% 60 30% 20
10 - 19 Years 63 35% 45 34% 18 27 30% 19 29% 8 90 34% 64 32% 26
20 - 29 Years 39 22% 16 12% 23 27 30% 8 12% 19 66 25% 24 12% 42
30 Years Plus 12 7% 19 14% -7 20 22% 31 47% -11 32 12% 50 25% -18
Total 179 100% 132 100% 47 89 100% 66 100% 23 268 100% 198 100% 70
Age
Samp
le Si
ze
Chart 6
Building age profile by %
10
20
70
60
40
50
30
0
2008 - A/C
2007 - A/C
2008 - Non A/C
2007 - Non A/C
0 - 9 Years 10 - 19 Years 20 - 29 Years 30 Years Plus
Chart 7
National average component service charges - year end 31/12/2008 A/C Buildings Non A/C Buildings
2008 2007 Change from 2007 2008 2007 Change from 2007
£psf % £psf % £psf % £psf % £psf % £psf %
Management Fees 0.61 9.0 0.59 8.4 0.02 3.5 0.59 10.2 0.50 9.2 0.09 17.3
Site Management Resources 0.53 7.9 0.67 9.7 -0.14 -20.9 0.48 8.4 0.74 13.6 -0.26 -34.9
Electricity 0.93 13.8 1.03 14.8 -0.10 -9.8 0.62 10.7 0.53 9.6 0.09 17.7
Gas 0.28 4.1 0.29 4.2 -0.02 -5.8 0.34 6.0 0.31 5.7 0.03 9.6
Water 0.12 1.8 0.11 1.6 0.01 6.8 0.11 1.9 0.12 2.3 -0.01 -10.1
Security 1.28 19.1 1.42 20.5 -0.14 -10.2 0.79 13.7 0.75 13.7 0.04 5.5
Cleaning & Environmental 0.81 12.0 0.79 11.3 0.02 2.7 0.82 14.1 0.74 13.5 0.08 10.7
M&E Services 1.47 22.0 1.34 19.3 0.14 10.3 1.22 21.2 0.96 17.5 0.27 28.1
Lifts and Escalators 0.22 3.3 0.24 3.5 -0.02 -8.0 0.24 4.1 0.21 3.8 0.03 15.1
Fabric Repairs and Maintenance 0.46 6.8 0.46 6.7 -0.01 -1.2 0.55 9.5 0.61 11.2 -0.06 -10.3
TOTAL 6.70 100.0 6.94 100.0 -0.24 -3.5 5.77 100.0 5.47 100.0 0.30 5.4
Office OSCAR 2009 – Service Charge Analysis for Offices
10 11
The average figures for service charges are:
- Airconditionedbuildingcostshavefallenby3.5%to£6.70persqft.- Nonair-conditionedbuildingcostshaverisenslightlyto£5.77persqft
from £5.47 per sq ft, a 5.4% increase, the fifth consecutive year there has beenarise.
By way of comparison the Retail Price Index increased by 1% during the same period. The Trend Graphs show the national average costs under each service charge heading since 1997 mapped against the RPI index.
Analysis of cost categories
Air conditioned and non air conditioned properties show close parity in the following heads of expenditure:
• Management fees• Site Management Resources• Gas• Water• Cleaning and environmental• Lifts and escalators
Air conditioned buildings cost more in terms of:
• Electricity• Security• M and E Services
Non air conditioned buildings cost more in terms of:
• Fabric repair and maintenance.
Our brief observations on each of the cost categories are as follows:
Utilities
It is counter intuitive that the average costs of electricity for air conditioned buildings have decreased whilst those for non air conditioned properties have increased since last year. This may be explained by changes in the
sample, changes in the relative consumption (possibly relating to changes in the weather) or the fact that air conditioned buildings are more likely to be subject to sophisticated purchasing policies, which bundle properties together for best commercial advantage. In comparison the costs of gas and water have been relatively stable. Histor-ically costs for gas in air conditioned and non air conditioned properties have shadowed each other. However this year costs of gas for non air conditioned buildings have risen at a slightly higher rate, which we believe reflects the older less efficient stock within the sample of properties. The costs of water have remaind relatively flat when compared with previous years.
Security
Following a stepped increase in �001 following terrorist activity at that time, costs have generally risen in line with inflation on air conditioned properties. The year on year changes in security costs of non air conditioned buildings has been slightly more erratic perhaps indicating more ad hoc investment in sophisticated security systems such as CCTV and security barrier systems. This year spend on air conditioned properties has fallen from £1.42 per sq ft to £1.28 per sq ft which could be reflective of a lack of spend on these items during the subject year. For non air conditioned buildings costs have increased by 5.5% and this follows the trend since 2001 where expenditure has just been above inflation.
Cleaning and environmental
The trend graphs reveal that costs have generally tracked inflation since 1997. This is again shown on air conditioned buildings with a 3% increase over the previous year. Costs have risen at a greater rate on non air con-ditioned buildings by 11% this year. This increase could be due to the less efficient design of old non air conditioned stock and the different sample of buildings considered this year.
National average component service charges
M and E Services
This category has shown the largest increase in both air conditioned and non air conditioned properties, a 10% and a 28% increase respectively. The trend analysis shows there is an ever decreasing gap between the costs for air conditioned and non air conditioned buildings. As highlighted in last year’s “Looking to the Future” analysis, to meet the increasingly significant green agenda, costs of maintenance will continue to rise. In addition as plant comes closer to the end of its useful life, in older non air conditioned stock, the costs of repair will continue to increase disproportionately.
Lifts and escalator maintenance
Costs have fallen by 8% for air conditioned buildings and risen by circa 15% for non air conditioned buildings. In looking at the trend analysis for non air conditioned building the figure in 2006 seems to be out of the norm and the overall cost over the last ten years remains on or about 20 pence per sq ft. We shall monitor this closely in next year’s report.
Fabric repair and maintenance
As stated above this is the one category where costs tend to be higher for non air conditioned buildings. This is reflective in the higher costs of maintaining older buildings but the costs per square foot seems to have stabilised over the last three years of the sample at circa 60 pence per square foot.
Site management resources
After a steady period of cost increases over the last six years for air condi-tioned properties there has been a decrease this year. The reasons for this are difficult to judge but it may be that the increasing use of technology has resulted in fewer staff being employed within the properties. This will have to be carefully monitored in future years. We commented in the previous year’s Office OSCAR that the spike in costs under this heading for non air conditioned properties needed to be treated with caution and this year’s figure appears to take us back to the slowly rising trend we have noted over the previous years.
Office OSCAR 2009 – Service Charge Analysis for Offices
1� 1�
Managem
ent Fees
Site Mana
gement
Resourc
es
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epairs
and Main
tenanc
e
Chart 9
National average component service charges by %
5.00
10.00
25.00
20.00
15.00
0.00
2008 - A/C
2007 - A/C
2008 - Non A/C
2007 - Non A/C
Managem
ent Fees
Site Mana
gement
Resourc
es
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epairs
and Main
tenanc
e
Chart 8
National average component service charges
0.20
0.40
1.60
0.80
1.00
1.20
1.40
0.60
0.00
Serv
ice C
harg
e PSF
(£)
2008 - A/C
2007 - A/C
2008 - Non A/C
2007 - Non A/C
Office OSCAR 2009 – Service Charge Analysis for Offices
14 15
1.6
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
19981997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
OSCAR Year
Chart 5
Management fee
Site management resources
Electricity
Gas
Water
M&E Services
Lifts and Escalators
Fabric repairs and maintenance
Security
Cleaning & Environmental
JLL RPI Index
Chart 10
National average A/C cost category trends
1.5
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
OSCAR Year
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Management fee
Site management resources
Electricity
Gas
Water
M&E Services
Lifts and Escalators
Fabric repairs and maintenance
Security
Cleaning & Environmental
Chart 5
JLL RPI Index
Chart 11
National average non A/C cost category trends
Office OSCAR 2009 – Service Charge Analysis for Offices
16 17
350
0
50
100
150
200
250
300
OSCAR Year
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Chart 5
JLL RPI index base 1983
A/C cost index
Non - A/C cost index
IPD office rent index
Chart 13
Service charge trend indexation graph 1983-2008
Chart 12
Service charge trend indexation date 1983-2008 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
RPI @ December 86.9 90.9 96.0 99.6 103.3 110.3 118.8 129.9 135.7 139.2 141.9 146.0 150.7 154.4 160.0 164.4 167.3 172.2 173.4 178.5 183.5 189.9 194.1 202.7 210.9 212.9
% Change RPI - 4.6% 5.6% 3.7% 3.7% 6.8% 7.7% 9.3% 4.5% 2.6% 1.9% 2.9% 3.2% 2.5% 3.6% 2.8% 1.8% 2.9% 0.7% 2.9% 2.8% 3.5% 2.2% 4.4% 4.0% 0.9%
JLL RPI Index Base 1983 100.0 104.6 110.5 114.6 118.9 126.9 136.7 149.5 156.2 160.2 163.3 168.0 173.4 177.7 184.1 189.2 192.5 198.2 199.5 205.4 211.2 218.5 223.4 233.3 242.7 245.0
A/C Cost Index 100.0 92.4 101.7 104.0 120.5 134.8 148.3 151.6 174.2 167.5 176.5 162.2 150.0 139.7 146.0 151.0 158.3 165.5 172.8 197.3 205.0 213.0 207.3 227.1 229.8 221.9
Non-A/C Cost Index 100.0 102.1 112.3 123.0 134.8 142.3 167.4 187.2 199.0 189.3 194.7 199.5 164.2 161.0 164.7 171.7 178.6 185.1 197.4 212.3 192.0 235.7 273.3 291.5 292.7 308.5
IPD Office Rent Index 100.0 102.9 109.2 122.0 152.0 190.2 217.6 218.7 186.1 148.2 128.0 126.6 125.8 129.5 143.1 156.8 167.3 189.6 197.9 182.7 163.1 162.8 167.1 179.9 197.2 189.7
IPD Office Rental
Growth % 2.4 2.9 6.1 11.7 24.6 25.2 14.4 0.5 -14.9 -20.4 -13.6 -1.1 -0.6 2.9 10.5 9.6 6.7 13.3 4.4 -7.7 -10.7 -0.2 2.6 7.7 9.6 -3.8
7
0
1
2
3
4
5
6
OSCAR Year
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Non A/C: A/C cost ratio
A/C cost
Non A/C cost
Cost differential
Chart 15
Service charge trend indexation graph 1983-2008
Chart 14
Service charge trend absolute data 1983-2008
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
A/C Cost 3.02 2.79 3.07 3.14 3.64 4.07 4.48 4.58 5.26 5.06 5.33 4.90 4.53 4.22 4.41 4.56 4.78 5.00 5.22 5.96 6.19 6.43 6.26 6.86 6.94 6.70
Non A/C Cost 1.87 1.91 2.10 2.30 2.52 2.66 3.13 3.50 3.72 3.54 3.64 3.73 3.07 3.01 3.08 3.21 3.34 3.46 3.69 3.97 3.59 4.41 5.11 5.45 5.47 5.77
Cost Differential 1.15 0.88 0.97 0.84 1.12 1.41 1.35 1.08 1.54 1.52 1.69 1.17 1.46 1.21 1.33 1.35 1.44 1.54 1.53 1.99 2.60 2.03 1.15 1.41 1.47 0.93
Non A/C : A/C Cost Ratio 62% 68% 68% 73% 69% 65% 70% 76% 71% 70% 68% 76% 68% 71% 70% 70% 70% 69% 71% 67% 58% 68% 82% 79% 79% 86%
10 Year Average Differential 1.19 1.24 1.27 1.32 1.36 1.38 1.37 1.38 1.43 1.42 1.47 1.56 1.65 1.62 1.64 1.65 1.61
10 Year Average Ratio 69% 70% 71% 71% 71% 71% 71% 71% 70% 70% 70% 69% 68% 70% 70% 71% 73%
Office OSCAR 2009 – Service Charge Analysis for Offices
18
Total service charge by location
The trend for average service charges for buildings in the City and West End to rise at a higher rate than for those for the rest of the country has been reversed this year. In the previous year air conditioned buildings were 38% more expensive to run in the City and West End than the rest of the country and 62% for non air conditioned buildings. This year the figures have reduced to 24% and 46% respectively.
The West End is again more expensive than the City and Docklands for air conditioned buildings, whilst the City and Docklands are more expensive for non air conditioned buildings.
Usingweightedaveragesgearedtosamplesize: CentralLondonOtherLocations
A/C £7.54 per sq ft £6.07 per sq ftNon A/C £7.10 per sq ft £4.87 per sq ft
Excluding buildings in Greater London, there is uniformity between the upper and lower limits of service charge costs of £4 per sq ft (see charts 18 and 19) for air conditioned buildings. For non air conditioned buildings, there is a far higher variation between the upper and lower limits.
Total service charge by size
The costs of running smaller buildings of under �5,000 sq ft have fallen back this year for both air conditioned and non air conditioned buildings. In contrast the costs of running buildings over 100,000 sq ft have risen for both building types.
Differential between air conditioned and non air conditioned costs
For any given location
It is interesting to note that the trend that we have previously identified of the narrowing of costs between air conditioned and non air conditioned buildings has continued this year across all sectors with the exception of those properties in Greater London. This is partly the product of the non air conditioned buildings being of older stock with a comparatively higher spend on fabric repairs and maintenance than air conditioned properties.
For any given size
The clear differential we have noted in previous reports between air conditioned and non air conditioned building continues to widen. The weighted average in the two size categories over 40,000 sq ft shows a differential of £1.33 per sq ft as opposed to a figure of £1.23 per sq ft in the previous year.
National average
Air conditioned costs exceed non air conditioned costs by 93 pence per sq ft this year compared with £1.47 per sq ft for the previous year. Whilst the ratio between air conditioned and non air conditioned space has remained at about 80% for the last four years this has narrowed to circa 86% this year. We believe this is a reflection of the more aged stock for non air conditioned space with a comparatively higher spend in keeping these buildings in a satisfactory standard of condition.
Total service charge by building location and by building size
Office OSCAR 2009 – Service Charge Analysis for Offices
19 �0
Chart 17
Component service charge by building size - Year end 2008 A/C Buildings
24,999 sq ft and under 25,000 - 39,999 sq ft 40,000 - 99,999 sq ft 100,000 sq ft and above
£psf £psf £psf £psf
Management Fees 0.49 0.68 0.57 0.67
Site Management Resources 0.45 0.58 0.60 0.54
Electricity 0.90 1.04 0.81 1.19
Gas 0.20 0.25 0.27 0.33
Water 0.10 0.14 0.11 0.13
Security 1.07 1.67 1.35 1.64
Cleaning & Environmental 0.69 0.80 0.73 0.95
M&E Services 1.42 1.60 1.46 1.51
Lifts and Escalators 0.18 0.29 0.20 0.30
Fabric Repairs and Maintenance 0.42 0.61 0.42 0.64
TOTAL 5.92 7.64 6.52 7.91
Non A/C Buildings
24,999 sq ft and under 25,000 - 39,999 sq ft 40,000 - 99,999 sq ft 100,000 sq ft and above
£psf £psf £psf £psf
Management Fees 0.42 0.45 0.47 0.60
Site Management Resources 0.31 0.50 0.58 0.38
Electricity 0.55 0.75 0.58 0.65
Gas 0.17 0.35 0.33 0.53
Water 0.13 0.10 0.11 0.16
Security 0.68 1.42 0.55 1.19
Cleaning & Environmental 0.79 0.73 0.85 0.87
M&E Services 1.20 1.06 0.95 1.33
Lifts and Escalators 0.14 0.23 0.25 0.27
Fabric Repairs and Maintenance 0.42 0.63 0.78 0.33
TOTAL 4.81 6.21 5.46 6.31
Chart 16
Component service charge by building location - Year end 2008 A/C Buildings
City & Docklands West End Greater London South East Midlands Outer Regions
£psf £psf £psf £psf £psf £psf
Management Fees 0.68 0.67 0.74 0.50 0.43 0.53
Site Management Resources 0.63 0.54 1.12 0.57 0.29 0.62
Electricity 1.06 0.91 0.90 0.90 0.71 0.92
Gas 0.27 0.24 0.34 0.26 0.25 0.35
Water 0.11 0.13 0.09 0.12 0.10 0.13
Security 1.60 1.60 1.02 0.84 1.04 0.92
Cleaning & Environmental 0.79 1.04 0.74 0.65 0.78 0.67
M&E Services 1.56 1.77 1.79 1.36 0.84 1.20
Lifts and Escalators 0.30 0.24 0.20 0.12 0.14 0.26
Fabric Repairs and Maintenance 0.30 0.62 0.63 0.47 0.37 0.41
TOTAL 7.30 7.78 7.58 5.79 4.94 6.00
Non A/C Buildings
City & Docklands West End Greater London South East Midlands Outer Regions
£psf £psf £psf £psf £psf £psf
Management Fees 0.56 0.73 0.43 0.31 0.39 0.81
Site Management Resources 0.51 0.59 0.61 0.81 0.39 0.42
Electricity 0.75 0.68 0.67 0.55 0.36 0.65
Gas 0.54 0.39 0.28 0.19 0.32 0.31
Water 0.13 0.11 0.07 0.12 0.11 0.12
Security 1.52 1.02 0.91 0.30 0.77 0.38
Cleaning & Environmental 0.83 0.83 0.69 0.65 0.69 1.04
M&E Services 1.49 1.73 0.88 0.73 0.81 1.17
Lifts and Escalators 0.29 0.29 0.16 0.11 0.20 0.28
Fabric Repairs and Maintenance 0.56 0.65 0.22 0.33 0.62 0.65
TOTAL 7.18 7.02 4.92 4.09 4.65 5.83
Office OSCAR 2009 – Service Charge Analysis for Offices
�1 ��
2.00
4.00
6.00
8.00
10.00
12.00
24,999 sq ft and under 25,000 - 39,999 sq ft 40,000 - 99,999 sq ft 100,000 sq ft and above
£ per
sq ft
0.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
OSCAR Year24,999 sq ft and under 25,000 - 39,999 sq ft 40,000 - 99,999 sq ft 100,000 sq ft and above
£ per
sq ft
Upper Limit
Mean
Lower Limit
Upper Limit
Mean
Lower Limit
5.92
9.81
7.64
5.47
8.21
3.62
8.76
6.52
4.27
9.80
7.91
6.01
7.04
4.81
2.59
8.53
6.21
3.89
7.42
5.46
3.49
7.98
6.31
4.64
Chart 20
Total service charge by building size: a/c building (spread of middle 50% of service charge costs)
Chart 21
Total service charge by building size: non a/c buildings (spread of middle 50% of service charge costs)
2.00
4.00
6.00
8.00
10.00
12.00
24,999 sq ft and under 25,000 - 39,999 sq ft 40,000 - 99,999 sq ft 100,000 sq ft and above
£ per
sq ft
0.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
OSCAR Year24,999 sq ft and under 25,000 - 39,999 sq ft 40,000 - 99,999 sq ft 100,000 sq ft and above
£ per
sq ft
Upper Limit
Mean
Lower Limit
Upper Limit
Mean
Lower Limit
5.92
9.81
7.64
5.47
8.21
3.62
8.76
6.52
4.27
9.80
7.91
6.01
7.04
4.81
2.59
8.53
6.21
3.89
7.42
5.46
3.49
7.98
6.31
4.64
Chart 20
Total service charge by building size: a/c building (spread of middle 50% of service charge costs)
Chart 21
Total service charge by building size: non a/c buildings (spread of middle 50% of service charge costs)
0.00
OSCAR Year
City & Docklands West End Greater London South East Midlands Outer Regions
£ per
sq ft
2.00
4.00
6.00
8.00
10.00
12.00
Upper Limit
Mean
Lower Limit9.58
7.30
5.02
9.99
7.78
5.58
8.54
7.586.62
7.77
5.79
3.81
6.97
4.94
2.91
8.15
6.00
3.85
Chart 18
Total service charge by building location: a/c buildings (spread of middle 50% of service charge costs)
0.00
OSCAR Year
City & Docklands West End Greater London South East Midlands Outer Regions
£ per
sq ft
2.00
4.00
6.00
8.00
10.00
12.00
Upper Limit
Mean
Lower Limit9.32
7.18
5.03
8.96
7.02
5.07
6.05
4.92
3.79
5.62
4.09
2.55
5.86
4.65
3.44
8.71
5.83
2.95
Chart 19
Total service charge by building location: Non a/c buildings (spread of middle 50% of service charge costs)
Office OSCAR 2009 – Service Charge Analysis for Offices
�� �4
Managem
ent
Site Mana
gement
Resource
s
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
Chart 24
Component service charge Greater London: a/c buildings (spread of middle 50% of service charge costs)
0.20
0.40
0.60
0.80
1.00
3.60
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
1.20
0.00
Upper Limit
Mean
Lower Limit
0.90
0.740.56
1.42
1.12
0.82
1.27
0.90
0.54 0.50
0.340.19 0.13
0.090.06
1.52
1.02
0.52
0.90
0.740.58
2.13
1.79
1.44
0.280.200.12
0.96
0.63
0.31
Managem
ent
Site Mana
gement
Resource
s
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
Chart 25
Component service charge South East: a/c buildings (spread of middle 50% of service charge costs)
0.200.400.600.801.00
3.60
1.401.601.802.002.202.402.602.803.003.203.40
1.20
0.00
Upper Limit
Mean
Lower Limit
0.680.500.32
0.84
0.57
0.30
1.42
0.90
0.380.46
0.260.07
0.200.120.03
1.53
0.84
0.15
0.91
0.65
0.39
1.97
1.36
0.75
0.210.120.02
0.82
0.47
0.12
Managem
ent
Site Mana
gement
Resource
s
Electric
ity Gas
Water
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
0.200.400.600.801.00
3.60
1.401.601.802.002.202.402.602.803.003.203.40
1.20
0.00
Upper Limit
Mean
Lower Limit
1.02
0.68
0.34
0.93
0.63
0.33
1.59
1.06
0.53 0.440.270.10
0.180.110.05
2.30
1.60
0.90
1.12
0.79
0.46
2.16
1.56
0.95
0.48
0.300.12
0.56
0.30
0.03
Chart 22
Component service charge City & Docklands: a/c buildings (spread of middle 50% of service charge costs)
Managem
ent
Site Mana
gement
Resource
s
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
Chart 23
Component service charge West End: a/c buildings (spread of middle 50% of service charge costs)
0.200.400.600.80
1.00
3.60
1.401.601.802.002.202.402.602.803.003.203.40
1.20
0.00
Upper Limit
Mean
Lower Limit
0.90
0.670.44
0.77
0.540.31
1.39
0.91
0.42 0.430.24
0.060.230.130.04
2.48
1.60
0.73
1.62
1.04
0.47
2.37
1.77
1.18
0.37
0.240.11
1.05
0.62
0.20
Office OSCAR 2009 – Service Charge Analysis for Offices
�5 �6
Managem
ent
Site Mana
gement
Resource
s
Electric
ity Gas
Water
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
0.200.400.600.801.00
3.60
1.401.601.802.002.202.402.602.803.003.203.40
1.20
0.00
Upper Limit
Mean
Lower Limit
0.740.560.38
0.730.51
0.29
1.40
0.75
0.10
0.90
0.54
0.170.210.130.06
2.39
1.52
0.65
1.20
0.83
0.46
2.26
1.49
0.71
0.530.290.06
0.93
0.56
0.15
Chart 28
Component service charge City & Docklands: non a/c buildings (spread of middle 50% of service charge costs)
Managem
ent
Site Mana
gement
Resource
s
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
Chart 29
Component service charge West End: non a/c buildings (spread of middle 50% of service charge costs)
0.200.400.600.80
1.00
3.60
1.401.601.802.002.202.402.602.803.003.203.40
1.20
0.00
Upper Limit
Mean
Lower Limit
1.00
0.73
0.46
0.85
0.59
0.33
1.05
0.68
0.31
0.68
0.39
0.10 0.190.110.02
1.84
1.02
0.20
1.14
0.83
0.52
2.53
1.73
0.93
0.50
0.290.08
1.16
0.65
0.14
Managem
ent
Site Mana
gement
Resource
s
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
Chart 26
Component service charge Midlands: a/c buildings (spread of middle 50% of service charge costs)
0.200.400.600.801.00
3.60
1.401.601.802.002.202.402.602.803.003.203.40
1.20
0.00
Upper Limit
Mean
Lower Limit
0.62
0.430.25
0.380.290.20
1.03
0.71
0.38 0.430.250.07
0.180.100.03
1.45
1.04
0.63
1.13
0.78
0.43
1.40
0.84
0.29 0.260.140.01
0.79
0.37
0.00
Managem
ent
Site Mana
gement
Resource
s
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
Chart 27
Component service charge Outer Regions: a/c buildings (spread of middle 50% of service charge costs)
0.20
0.40
0.60
0.80
1.00
3.60
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
1.20
0.00
Upper Limit
Mean
Lower Limit
0.86
0.53
0.20
0.92
0.62
0.32
1.35
0.92
0.49 0.58
0.350.11
0.220.130.04
1.65
0.92
0.19
0.95
0.67
0.39
1.75
1.20
0.65
0.48
0.26
0.03
0.68
0.41
0.13
Office OSCAR 2009 – Service Charge Analysis for Offices
27 �8
Managem
ent
Site Mana
gement
Resourc
es
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
Chart 32
Component service charge Midlands: non a/c buildings (spread of middle 50% of service charge costs)
0.20
0.40
0.60
0.80
1.00
3.60
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
1.20
0.00
Upper Limit
Mean
Lower Limit
0.510.390.26
0.550.390.23
0.59
0.36
0.13
0.52
0.320.11
0.160.110.05
1.31
0.77
0.22
0.95
0.69
0.43
1.18
0.81
0.450.300.200.10
1.20
0.62
0.05
Managem
ent
Site Mana
gement
Resource
s
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
Chart 33
Component service charge Outer Regions: non a/c buildings (spread of middle 50% of service charge costs)
0.20
0.40
0.60
0.80
1.00
3.60
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
1.20
0.00
Upper Limit
Mean
Lower Limit
1.49
0.81
0.13
0.600.420.24
1.14
0.65
0.16
0.53
0.31
0.090.190.120.06
0.83
0.38
0.00
1.72
1.04
0.35
1.94
1.17
0.390.50
0.28
0.06
1.13
0.65
0.18
Managem
ent
Site Mana
gement
Resource
s
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
Chart 30
Component service charge Greater London: non a/c buildings (spread of middle 50% of service charge costs)
0.20
0.40
0.60
0.80
1.00
3.60
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
1.20
0.00
Upper Limit
Mean
Lower Limit
0.52
0.430.35
1.04
0.61
0.18
1.24
0.67
0.10
0.390.280.17 0.11
0.070.03
1.19
0.91
0.62
0.97
0.69
0.41
1.19
0.88
0.57
0.210.160.10
0.330.220.11
Managem
ent
Site Mana
gement
Resource
s
Electric
ity GasWate
r
Security
Cleanin
g & Envi
ronment
al
M&E Service
s
Lifts a
nd Esca
lators
Fabric R
epair
£ per
sq ft
Chart 31
Component service charge South East: non a/c buildings (spread of middle 50% of service charge costs)
0.200.400.600.801.00
3.60
1.401.601.802.002.202.402.602.803.003.203.40
1.20
0.00
Upper Limit
Mean
Lower Limit
0.45
0.310.16
1.26
0.81
0.36
0.88
0.55
0.21 0.310.190.08
0.190.120.04
0.58
0.30
0.01
0.96
0.65
0.35
1.16
0.73
0.290.220.110.00
0.61
0.33
0.04
Office OSCAR 2009 – Service Charge Analysis for Offices
�9 �0
rather than re-locate. Planned maintenance programmes are now well es-tablished and these should have the effect of smoothing year-on-year costs and reducing unplanned expenditure.
Site Management Resources
We predict that Site Management Resources will remain fairly constant in terms of cost, with most companies adopting a no or low annual salary increase. The range of skills now expected from facilities and building man-agement personnel, with management of tight budgets and supplier liaison coming increasingly to the fore, requires a higher than ever level of training which may increase non-wage costs
Water
The industry regulator has agreed to above inflation rises to finance invest-ment in ageing infrastructure.
Conclusion
There is a general understanding that the effects of the recession are more persistent than had been imagined two years ago and the supplier markets understand that widespread cost increases will not be tolerated. Wages will generally remain static with limited increases in certain areas and cost savings can still be achieved by careful consideration of specifications, increased use of technology and diligent management of suppliers.
Energy
Wholesale prices have fallen from the peak of �008 but have returned to a general upward trend with occasional volatile variance from day to day. Network charges are increasing across the UK to pay for the modernisation of utility infrastructure. The introduction of feed-in tariffs provides opportuni-ties for some but the cost of this subsidy is borne by all users.
The carbon reduction commitment (CRC) has proved to be a costly administrative burden in the registration phase and will continue to be so for the evidence packs. However, the provision of clear information on energy consumption is fundamental to energy management and potential cost reductions to the occupiers’ and landlords’ advantage.
The roll out of automatic meter readers on gas and smaller electricity sup-plies will have a direct advantage for the landlords on CRC and occupiers for energy and cost management. The current under capacity of installa-tion teams to meet the CRC early adoption metrics will ease as the year progresses.
Security
Security costs will generally remain constant for the third successive year. Wage increases will be restricted to those sites where recruitment or reten-tion of staff is becoming problematic. Concerns about job security which accompanied the onset of the recession had led to reduced churn levels but a third year of wage freezes may now make relatively minor variations in wage rates a compelling reason to move.
Re-visiting specifications and greater use of technology, especially the use of remote monitoring, can still lead to overall cost reductions even when wage rates are threatening to push costs up.
M&E Services
Annual maintenance costs have remained flat as a direct result of the finan-cial climate with tenants looking to minimise their expenditure and landlords being affected by void spaces. In some cases, the scope of maintenance servicing has been reduced in either the level, or frequency of maintenance, to reduce costs from the previous year. Engineer salary levels have broadly remained static, although this is expected to increase in the short/ medium term as the amount of quality skilled engineers remains in short supply.
By the end of 2010 all AC systems should have been inspected by and Accredited Energy Assessor to meet legislative requirements, although concerns remain across the industry as a whole in relation to levels of compliance.
Cleaning and Environmental
The ongoing recession will lead to a third year of zero costs increase for cleaning. Wages account for the majority of total cleaning costs and as cleaning is a generally low paid industry minimum wage levels become a significant driver. Increases to minimum wage have put pressure on costs but changes to specifications and the use of machinery can mitigate this and allow overall cleaning charges to be maintained at constant levels.
Waste disposal costs continue to rise with year on year above inflation increases in landfill tax being the most significant element. This has encour-aged greater efforts to recycle but the recession has led to the collapse in the market for many recycled products which could offset some collection charges. Active efforts to reduce waste going to both landfill and recycling will therefore be the best way of keeping cost increases as low as possible.
Fabric Repairs and Maintenance
Tenants continue to increase emphasis on their buildings being presented in excellent order as there is a move to maintain and enhance existing space
Looking to the Future
Office OSCAR 2009 – Service Charge Analysis for Offices
�1 ��
Geographical areas
City & DocklandsEC1, EC2, EC3, EC4 and E14.
West End of LondonW1, SW1, WC1 and WC2.
Greater LondonThis region includes those postal districts roughlybounded by the M25. W, WD, HA, NW, N, EN, E,IG, RM, DA, SE, BR, CR, SW, SM, KT, TW, UB.
South EastThose postal districts including and lying inside:PO, SO, RG, OX, MK, SG, CB, CO.
MidlandsL, WA, M, CW, SK, S, ST, DE, NG,WV, DY, WS,LE, B, CV, NN.
Outer RegionsAll postal districts outside of the Midlands and South East.
Cost categoriesThe Royal Institution of Chartered Surveyors Service Charge Code came into effect on 1 April 2007 and incorporates 22 standard cost categories. From discussions with our clients and other managing agents, it would appear that the Code has been fully embraced and there should therefore be greater uniformity in the way that service charges are presented across the industry.
The data presented within this year’s Office OSCAR is for the year ending December 2008. We detail below for ease of reference the items included within each category:
Management1. Management• Management fees• Accounting and audit fees NB – this currently incorporates the
‘Accounting Fees’ cost category as defined within the RICS Service Charge Code
2. Site Management Resources• FM Staff /Concierge / Receptionist costs• Site accommodation (rent / service charge /
rates)• Office costs (telephones / stationery / petty
cash)• Help desk / call centre / information centre• Landlord’s health, safety and environmental risk
assessments, audits and reviews NB – this currently incorporates the ‘Health,
Safety and Environmental’ cost category as defined within the RICS Service Charge Code
Utilities3. Electricity• Electricity• Fuel (standby electrical power)• Electricity procurement / consultancy
4. Gas• Gas and heating fuel oil• Gas / fuel oil procurement / consultancy NB – this currently incorporates the ‘Fuel Oil
(Heating)’ cost category as defined within the RICS Service Charge Code
5. Water• Water and sewerage charges• Water consultancy
Soft Services6. Security• Security guarding and receptionists• Security systems• Post room and mail distribution services7. Cleaning & Environmental• Internal / external / window cleaning• Hygiene services / toiletries• Carpets / mats hire• Waste management• Pest control• Floral displays and landscaping• Suspended access equipment, maintenance
and repairs NB – this currently incorporates the
‘Suspended Access Equipment’ cost category as defined within the RICS Service Charge Code
Hard Services8. M&E Services• M&E maintenance and repairs• M&E inspections and consultancy• Life safety systems maintenance and repairs• Life safety systems inspections and
consultancy9. Lifts & Escalators• Lift maintenance and repairs• Lift inspections and consultancy• Escalator maintenance and repairs• Escalator inspections and consultancy
10. Fabric Repairs & Maintenance• Internal / external repairs and maintenance• Re-decoration
Other termsExceptional Expenditure• Project works• Refurbishments and major repairs• Draw-down from forward funding accounts• Sinking / replacement / reserve funds• Depreciation /repayment charges• Estate / external service chargesBase-level Service Charge• The full service charge costs of running a
building excluding exceptional expenditure. This provides a measure of the cost of providing routine operational services to a building.
Full Service Charge Costs• The full expenditure running through a
service charge account, including exceptional expenditure, but excluding any interest receipts and insurance costs.
Air-Conditioned• A building in which cooling and heating are
provided in the majority of the lettable space via the landlord’s central plant installation.
Non Air-Conditioned• A building in which only the heating is
provided in the majority of lettable space via the landlord’s central plant installation. Tenant’s supplemental air-conditioning plant is disregarded in this context.
Definition of terms
��
Jones Lang LaSalle, 40 Bank Street, Canary Wharf, London E14 5EG +44 (0)20 3147 6040
www.joneslanglasalle.co.uk/OSCAR
Contacts
Property and Asset Management
Nigel WheelerChairman of Property and Asset Management +44 (0)20 3147 [email protected]
David GriffinDirector ofProperty and Asset Management +44 (0)20 3147 [email protected]
Gavin BlackwellAssociate Director ofProperty and Asset Management +44 (0)20 3147 [email protected]
Richard AnglissLead Director Property and Asset Management +44 (0)20 7399 [email protected]
COPYRIGHT © JONES LANG LASALLE, IP, INC. 2011. All Rights Reserved. While every effort has been made to ensure accuracy andcompleteness, we cannot offer any warranty that factual errors may have occurred. Jones Lang LaSalle cannot accept any legal responsibilityfor any damage or loss suffered by reason of any inaccuracy or incorrectness concerning information and material in this report.