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 energy prices will remain high 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. Suppliers are driven by credit risk. 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 their 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), Energy Performance Certificates for non-domestic buildings will focus more attention on energy consumption within shopping centres. 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. These will summarise the actual energy consumption and rate the performance on an A-G to scale. This is likely to be another key driver for landlords to improve energy management within their centres.
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 08) 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.
The reduced availability of landfill sites and above inflation increases in landfill tax (rising by £8 per tonne from 1 April 2008) 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.
Climate charge levies are also expected to rise in line with inflation.
Security
Following publication of the Lord West Review in November 2007 the Government is looking to landlords to take a more active role in providing security in the public realm. The government is offering access to its training programmes at a cost and this may have an impact on security costs for shopping centres as Disaster Recovery and Major Incident planning rise in importance.
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.
A recent purge by the SIA on already licensed officers predominately on the 'Right to Work' in the UK has further emphasised the need to select security contractors carefully and to resist driving cost too far down. It is anticipated that the use of technology will increase to compensate both available resource and cost.
M&E Services
It is possible that spending on M&E related services in shopping centres will decrease slightly over the next 12 months as development and refurbishment projects are cut back due to tightening financial markets. The costs of carrying out fire risk assessments will become an issue as the industry starts to understand the implications of the legislation.
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. A limited pool of good quality labour will continue to push-up salary levels and impact upon contract prices in the short to medium.
Fabric Repairs & Maintenance
Tenants continue to increase emphasis on their centres being presented in excellent order, with corresponding planned maintenance programmes in place. This should have the effect of smoothing yearon- year costs and reducing unplanned exceptional expenditure.
Centre Management Resources
We predict that Centre Management Resources will continue to rise above inflation. We believe this will be a result of a limited pool of good quality centre management staff and ever increasing training needs to keep pace with the legislative and technical developments. We also anticipate that the ever increasing necessity for Health & Safety and compliance management will put increasing pressure on centre management resources and may lead to increased staffing levels.
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 in shopping centres.
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 in shopping centres. This burden appears to be weighing more heavily on the older shopping centre stock, where there is perhaps less scope to benefit from economies of scale and technical innovation.
EPC's and tightening of legislation on air-conditioning systems in early 2009 will also adversely impact on older centres.