Looking to the future
Energy
Following falls in the early part of 2007, market prices recovered towards the end of the year. The early part of 2008 has seen this trend continue, driven by high oil prices despite uncertainty in the wider UK and US economies. Economic fundamentals indicate Gas and Electricity prices will continue to increase as countries like China and India continue to develop at a rapid pace.
Wholesale markets continue to be volatile, presenting risk and opportunity to buyers. Long term, risk managed solutions are seen as beneficial strategies for customers to adopt.
The price premium for renewable energy has risen as demand outstrips supply. Those organisations serious about reducing environmental impact will consider the relative merits of this 'Green Premium' against investment in better energy management.
In addition to the Buildings Regulations (Part L 2006), impending Energy Performance Certificates (soonest date April 2008) for non-domestic buildings will focus more attention on energy consumption within office buildings. The asset rating of buildings based on the design information of installed equipment and the building fabric will be the first stage, with operational ratings widely anticipated to be implemented across commercial property (government agency property from October 2008) within 12-18 months. This will summarise the actual energy consumption and rate the performance on an A-G to scale. This is likely to another key driver for landlords to improve the energy management within their buildings.
Security
Licensing of contract security guards and public space CCTV surveillance came into force in England and Wales in March 2006. There was an immediate impact on contract charges through licensing and training costs. The industry expects licensed officers to be a scarce resource leading to significant pay increases. Property managers must ensure that contract security firms only deploy licensed officers. The definition of what constitutes 'public space surveillance' is an area of uncertainty which requires close attention by managing agents and owners but is more likely to impact shopping centres. Last year saw the introduction of the scheme in Scotland.
A recent purge by the SIA of already licensed officers predominately on the 'Right to Work' in the UK has further emphasised the need to select security contractors carefully. It is anticipated that the use of technology will increase to compensate both available resource and cost.
M&E Services
The inflation of Maintenance costs has consistently exceeded the RPI indices and this is unlikely to change in the medium term as resources and skill sets continue to be an issue. The use of technology, both for updating maintenance records and monitoring/predicting the failure of plant (condition-based maintenance) are now starting to be introduced. This should see an improvement in communication and service levels, as well as containing cost.
The introduction of the F-Gas Regulations which came into force in July 2007 means that only competent engineers are allowed to undertake maintenance on refrigeration systems and must have the necessary systems in place to record the quantities of refrigerants used. The emphasis is on the containment of refrigerants to reduce leakage and global warming. The further tightening of air-conditioning regulation in January 2009 and 2011 will further add to maintenance costs.
Cleaning & Environmental
The continued expansion of the EU (Romania and Bulgaria) will provide new sources of labour and new issues. In London, there is a concerted campaign by the Transport and General Workers' Union to force contractors to improve employment terms and pay well beyond the minimum wage levels. Current demands (February 2008) are for £7.20 per hour compared to the National Minimum Wage of £5.52.
An increase in statutory holiday entitlement from 20 to 24 days in October 2007, moving to 28 in 2009 is already adding further cost pressure. Reduced availability of landfill sites and above inflation increases in landfill tax are encouraging greater efforts to recycle waste and to find innovative ways of reducing waste. Shortage of recycling and landfill sites will further add to cost pressures.
Fabric Repairs & Maintenance
Tenants continue to increase emphasis on their buildings being presented in excellent order, with corresponding planned maintenance programmes in place. This should have the effect of smoothing year-on-year costs and reducing unplanned exceptional expenditure.
Site Management Resources
We predict that Site Management Resources will continue to rise above inflation. The same pressures apply, with a limited pool of good quality facilities and building management staff and ever increasing training needs to keep pace with the legislative and technical developments. Lift and Escalators
Lift companies and insurance inspectors are still coming to terms with SAFed's 'Guidelines on the supplementary test of in-service lifts (2006)' and the way the new tests are to be called for by competent persons. Until this improves the previous guidelines, SAFed Lift Guidelines (LG1), are likely to be referred to where there are fixed frequency group tests. A limited pool of good quality labour will continue to push-up salary levels and impact upon contract prices in the short to medium term.
Water
The industry regulator has agreed to above inflation rises to finance investment in ageing infrastructure.
Conclusion
Expectations remain that above inflationary increases in the costs of energy and labour, coupled with ever expanding legislative requirements, will drive up service charge costs. This burden appears to be weighing more heavily on the older, non air-conditioned, building stock, where there is perhaps less scope to benefit from economies of scale and technical innovation.
The EPC's and tightening of legislation on air-conditioning systems in early 2009 will also adversely impact on older (non-refurbished) properties.