National average component service charges
The average figures for service charges are:
- Air-conditioned building costs have increased by 9.6% to £6.86 per sq ft
- Non air-conditioned building costs have increased by 6.6% to £5.45 per sq ft
By way of comparison, the Retail Price Index increased by 4.4% and the IPD Office Rent Index increased by 7.8% during the same period.
We have striven to match the service charge cost categories used within Office OSCAR with the requirements of the RICS Service Charge Code. Generally the categories are already aligned to the Code but this year we have been able to supply more detail on energy costs. We have extended a detailed analysis of energy costs back over the last 10 years of data to allow a commentary on trends to be made.
It is interesting to note that the cost increases as detailed in this year's report were largely predicted in the 2006 Office OSCAR. In particular the following were noted:
All property types
Air-conditioned and non air-conditioned stock now show close parity in the following areas:
- Management Fees
- Site Management Resources
- Gas
- Water
- Cleaning & Environmental
- Fabric Repairs & Maintenance
And potentially also:
- Lifts & Escalators
The air-conditioned building stock costs more in terms of:
- Electricity
- Security
- M&E Services
Utilities
Energy costs have continued to rise appreciably and reflect the increasing volatility of the wholesale energy market. Electricity and Gas costs show a second year of marked increase above inflation. In broad terms, these increases are consistent between Electricity and Gas, and between air-conditioned and non air-conditioned properties. However, the impact of cost increases with Electricity are, perhaps, more pronounced with air-conditioned properties and the impact of gas increases more pronounced with non air-conditioned properties.
Water costs are also showing signs of increasing, but whilst this is notable in relative terms, it is less significant in absolute terms. It is not yet clear from the data whether this is indicative of an ongoing trend, but our impression is that such increases will continue. It is interesting to note that Gas and Water costs are very similar regardless of property type, although there is perhaps evidence that Gas costs are a little higher in non air-conditioned properties. Electricity costs show a clear stepped increase in air-conditioned properties compared to non air-conditioned properties.
Security
The impact of the licensing of the security industry and increased training has impacted the costs in this area.
Lifts
It was predicted that the lack of good quality labour in this market would have the effect of pushing up labour costs and this has been manifested in the figures. Somewhat surprisingly, non airconditioned buildings cost more in respect of routine Lift & Escalator maintenance. However, this might be due to an isolated peak in reactive works, or a skew in this year's data. We shall watch this closely in subsequent reports.
Air-Conditioned
Expenditure under each of the cost codes has risen above the rate of inflation with the exception of Management Fees, which have dropped in real terms. It will be interesting to monitor the effect, if any, that the move to fixed fees, as recommended by the Service Charge Code, will have on this trend.
Site Management Resources, Security, Cleaning & Environmental and M&E have all increased by broadly the same amount (6-10%) which we suspect reflects the inflationary effect of the working time directive and other labour related costs.
Lifts & Escalators have increased significantly (19.96%), but when looking back over the last 10 years' data, it is not clear if this is indicative of an ongoing trend, or possibly as a consequence of more reactive works.
Similarly, whilst Fabric Repairs & Maintenance have also increased significantly (15.4%), this is mostly likely due to a shift in reactive works and not due totally to an increase in cost base.
Non Air-Conditioned
There have been substantial increases in the following areas:
- M&E Services
- Lifts & Escalators
Our experience is that landlords and tenants are increasingly focusing on the quality of the services that are being provided to their staff and clients in these buildings. There is a drive to see the infrastructure of the buildings and the associated maintenance regimes improved. Increasingly staff are not prepared to put up with poorly running lifts and inefficient M&E Services and employers are keen to work with landlords to see the environment improved.
We saw a spike in costs relating to Fabric Repairs & Maintenance last year but the costs have fallen back in the current survey. This demonstrates how volatile this head of expenditure is, but the general underlying trend appears to be one of costs rising at above inflation. We shall carefully monitor this area of expenditure in coming surveys but we would expect the pressure to improve the quality of the environment to continue.
We consider that the reduction in Site Management Resource costs is due to an isolate spike in costs last year. A review of historical data reveals that Site Management Resource costs have closely matched Management Fees for the last 10 years and follow the same inflationary trend.
CHART 10
National average component service charges - year ended 31/12/2006
CHART 11
National average component service charges
CHART 12
National average component service charges by %
