• Foreword
• Executive summary
• The database
• The sample structure
• National average component service charges
• National average component service charges by percentage
• Total service charge by building location and by building size
• Component service charges by building location
• Service charge trends 1983-2006
• Looking to the future
• Definition of terms
• Geographical areas
• Data contributors
• Contact us
• Download OSCAR PDF

Service charge trends 1983-2006

Service Charge Indices

CHARTS 31 and 32 compare Jones Lang LaSalle's Service Charge Indices for air-conditioned and non air-conditioned buildings against the Retail Price Index and IPD's Office Rent Index.

Air-Conditioned Properties

The key trend since 1997 is that total air-conditioned service charge costs have closely tracked approximately 2.25 to 2.75% above inflation.

The trend line clearly shows a dip in 2005, and the increase in airconditioned costs in 2006 is more likely a 'correction' of the 2005 results. The 5 and 10 year averages are:

	5 Year	10 Year
RPI	2.75%	2.76%
A/C Index	5.54%	5.06%

Non Air-Conditioned Properties

Since 2000, we have noted that non air-conditioned service charge costs have risen significantly above inflation (with the exception of 2003). It is interesting to note that in 2006 costs continued to move ahead of inflation at an advanced rate. The 5 and 10 year averages are:

	5 Year	10 Year
RPI	2.75%	2.76%
Non A/C Index	8.34%	6.42%

We believe this reflects the fact that increasingly older non airconditioned buildings are subject to a high degree of reactive works. There has also been investment in Site Management Resources, Security, and Cleaning & Environmental, with parity often resulting across many of these service lines with the equivalent air-conditioned stock. Having lifted service levels in these arrears, we would predict future cost changes to shadow the air-conditioned stock.

There continues to be speculation that service charge costs are influenced by the rental market. When analysing CHART 32 this view does not seem to be supported and in reality we believe that these two indices are mutually exclusive. However, we do accept that a falling rental market will increase pressure to optimise operational costs and draw maximum leverage from procurement strategies. This is perhaps seen between 1992 and 1996.

Total Service Charge Trends

For the last three years there has been a narrowing of the differential in the average running costs between air-conditioned and non airconditioned properties as follows:

• 2002/2003 - £2.57 per sq ft
• 2003/2004 - £1.99 per sq ft
• 2004/2005 - £1.15 per sq ft

This trend has been reversed for this service charge year and the differential has risen to £1.41 per sq ft.

There is evidence that in particular the amount of expenditure in respect to fabric repair and maintenance for the non air-conditioned stock has fallen in the last year and this would appear to be the major reason for this change in trend. This is, perhaps, a reflection of the reduced age profile of the non air-conditioned building stock in this year's OSCAR.

However, further analysis (shown in CHARTS 33 & 34) demonstrates that the relative cost of running non air-conditioned buildings compared to air-conditioned buildings has remained remarkably static at 70%. This result is too consistent over 24 years of data to be disregarded and, we suggest, demonstrates that a substantial core of service charge costs are common to any multi-occupied office building. The additional 30% of costs required to run an air-conditioned building are attributable to:

• Increased Electricity and M&E Maintenance costs, driven by the extra plant found in air-conditioned buildings
• Additional Security and M&E Maintenance costs driven by increased service level requirements.

Component Cost Trends

It is interesting to note from CHARTS 35 and 36 parity, in real terms, across the following service lines regardless of property type:

• Management Fees
• Site Management Resources
• Gas
• Water
• Cleaning & Environmental
• Lifts & Escalators (subject to continued observation)
• Fabric Repairs & Maintenance

Air-conditioned properties are clearly more costly in terms of:

• Electricity
• Security
• M&E Maintenance

This seems entirely intuitive in terms of:

• The cost of Electricity to run central cooling plant
• The cost of maintaining greater and more complex central plant

Turing to Security, we do not suggest an intrinsic link between the cost of this service and a building being air-conditioned. However, the airconditioned sample is more heavily represented in central London and tends to be larger and of newer stock. There is therefore an indirect link between the air-conditioned sample and building location, perceived security risk and security service requirement.

Air-Conditioned component costs

• The costs of Security and M&E Services have continued to rise in line with inflation after falling back in 2005.
• The Gas and Electricity have risen in real terms following the trend we first saw in 2005.
• Water has shown a very marginal increase in real terms following a four year downward trend.
• Cleaning & Environmental costs have continued to increase and follow the trend of the previous year.
• Site Management Resources have shown the steady trend increase which has been continuous since 2001.
• Lifts & Escalator costs have increased following the downward trend highlighted in the previous year.

Non Air-Conditioned component costs

• Fabric Repairs & Maintenance costs have fallen appreciably following a year on year upward trend since 2000. These results are inherently volatile, due to the reactive nature of this component cost. However, it is interesting to note the age of the non airconditioned stock in our sample has fallen this year and this may have a bearing.
• Lifts & Escalator costs which generally followed inflation have risen appreciably in the last year. This warrants close monitoring and we feel that this may have been driven by the inclusion of greater reactive works in this year's sample. We consider that it is more likely that Lift & Escalator maintenance costs will show parity between air-conditioned and non air-conditioned stock, with a labour rate driven increase in future years.
• The Site Management Resources cost in the non air-conditioned stock were above those in the air-conditioned stock in 2005, but have reduced in 2006. There is now close parity in these Site Management Resources cost in both property types, which reconforms to the 10 year trend displayed by these costs.
• M&E Services continued the steep rise first noted in 2003 and constitute an increasingly significant element of service charge costs for Non Air-Conditioned buildings. This may be drive by a combination of:
  • Increased labour rates
  • The impact of reactive works
  • Enhanced planned maintenance regimes, better matching the practices adopted in air-conditioned building stock.

CHART 31 Service charge trend indexation data 1983-2005

CHART 32 Service charge trend indexation graph 1983-2006

CHART 33 Service charge trend absolute data 1983-2006

CHART 34 Service charge trend absolute graph 1983-2006

CHART 35 National average - A/C cost category trend analysis

CHART 36 National average - Non A/C cost category trend analysis