As a sector, our capacity to understand and react effectively to the challenges posed by changing technology, business models and working arrangements – as well as greater concern about the environment and health and well-being – will be shaped by the availability of reliable property data.
To gather such data, we need to consider all facets of building performance such as use, running costs and environmental performance.
With this in mind, BDO published the first major output from its PropCost service charge benchmarking initiative in February.
BDO's PropCost Offices 2022 is an independent analysis of service charge expenditure data for UK commercial properties and was developed in association with RICS.
The report offers an independently reviewed service charge benchmark, based on the key factors that affect building running costs: efficiency, size, region and sustainability.
PropCost – our vision for an industry-leading digital tool
BDO is working with RICS to develop a real-time benchmarking tool for service charge costs. As it takes shape, this interactive digital platform will provide property professionals with access to range of valuable insights. PropCost Offices 2022 is the first major output from this initiative.
Andrea Hunt from BDO comments: 'We've built on our standing in the real estate sector to become a market leader as advisers to investors and managing agents. We work to the latest RICS and ICAEW technical guidance and we're at the forefront of industry developments. Our experience and understanding allows BDO a unique opportunity to develop a truly independent benchmarking tool.'
Range of service charge data collected and analysed
In preparing PropCost Offices 2022, BDO reviewed a sizeable sample of property data from JLL, MAPP, British Land, Brookfield Properties, CBRE, and Revantage Real Estate. BDO's dataset totals 356 service charges, from which we have identified 269 properties with three years' worth of comparative data.
The report highlights that:
- 22% of service charges included retail space
- 34% of total service charge costs were spent on soft services, such as security and cleaning costs
- 23% of offices had an energy performance certificate (EPC) rating of A or B
- service charge costs for a small office were 51% higher per square foot than the largest assets
- service charge costs in central London were 68% higher per square foot than in the rest of the UK
- total service charge costs in 2022 have decreased 2.7% since 2020
- 75% of service charges in 2021 had lower spend than budgeted due to cancellation or reduction of services due to pandemic restrictions.
Our aim is for the analysis in PropCost Offices 2022 – and future PropCost outputs – to give property professionals the data insights they need to make better decisions in a broad range of arenas.
This could include service charge review and budgeting; delivering on sustainability and ESG commitments; and designing workspaces that reflect new working styles following the pandemic.
Sustainability investment reaps dividends
One way this will help is by establishing clearer connections between sustainability, efficiency and the costs associated with running a building.
PropCost Offices 2022 covers the impact of investment in sustainable office spaces on service charge costs to occupiers.
This is a subject that has been pushed to the foreground recently, with businesses increasingly attentive to environmental, social and corporate governance (ESG) considerations.
Around 13% of our sample buildings have a BREEAM sustainability rating. BREEAM considers a wide range of performance factors from construction to building operations and is just one of a large variety of sustainability ratings systems in the market, which we know is a fast-growing area for building assessments.
We found that, on average, buildings with the highest EPC rating had a 72% lower gas cost per square metre than those with the lowest efficiency.
We also noted that service charge costs were 20% less for a building with an A-rated certificate compared to the least efficient buildings in our data sample. This makes clear that investing meaningfully in sustainable technology can have a significant impact on costs.
The analysis also found that some of the most efficient buildings incurred higher running costs. This is likely due to the costs associated with investing in sustainable technologies and services, which also deliver value for occupiers.
The EPC rating of a building has become increasingly important to investors in recent years, with the introduction of the Minimum Energy Efficiency Standards (MEES). It is expected that by 2030, commercial buildings will need to be rated A or B if new leases are to be granted on them.
Only 23% of offices in the PropCost dataset would meet this standard, however, suggesting that tightening of the MEES would present a significant challenge to the sector.
Advancing PropCost in public interest
Input from RICS has been invaluable in developing PropCost, bringing more depth to our findings. RICS is in the unique position of being able to adopt a public-interest approach, factoring in perspectives from owners and occupiers alike.
BDO wholeheartedly supports RICS' aim of promoting best practice, uniformity and transparency in the management and administration of building service charges.
We also support the organisation's International Building Operation Standard (IBOS), and believe that PropCost is well positioned to help organisations meet the objectives of this framework.
IBOS promotes a holistic approach to building measurement and management for strategic decision-making, underpinned by reliable data.
Our hope is that PropCost service charge benchmarking can contribute meaningfully to this framework, helping property professionals to navigate the social, economic and environmental changes faced by the sector by offering a reliable point of comparison for building performance.
As we develop PropCost further, we plan to transfer the analysis to a digital tool, incorporate a broader scope of property types, and engage more contributors.
Our ultimate aim is to provide real-time, independently reviewed benchmarking data that enables property professionals to examine building performance against a range of factors and use this insight to inform decision-making.
'BDO wholeheartedly supports RICS' aim of promoting best practice, uniformity and transparency in the management and administration of building service charges'