BDO and RICS respond to call for transparency of service charge data

BDO and RICS respond to call for transparency of service charge data, identifying a 72% lower gas costs for the most efficient offices

Accountancy and business advisory firm BDO property report responds to the demand for greater transparency of independent service charge data for UK office spaces.

Launched today, BDO’s PropCost Offices 2022 benchmarking report has been developed in association with the Royal Institution of Chartered Surveyors (RICS) and delivers an independent analysis of service charge costs for UK office spaces.

The analysis covers the impact of investment in sustainable office spaces on service charge costs charged to occupiers. The PropCost report found that, on average, buildings with the highest Energy Performance Certificates (EPC) had a 72% lower gas cost per square foot than those with the lowest efficiency — this supports the position that cost savings can be achieved by investing in sustainable technology.

The EPC efficiency 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 in order to grant a new lease. Within the PropCost dataset only 23% of offices would meet this standard. This suggests that changes in MEES would provide a significant challenge to the sector to meet the higher requirements.

In recent years, UK office spaces have been subject to an unparalleled level of change. Accelerated by the global pandemic, significant periods of low occupancy in 2020 and 2021 were followed by a fundamental shift in the way we use our offices.

Highlights of BDO’s 2022 report of service charges on UK office spaces:

Total UK service charge reviewed value £270m
22% of service charges included retail space
34% of total service charge costs were spent on soft services
23% of offices had an EPC rating of A or B
72% reduction in gas costs for the most efficient buildings (EPC rated A) compared to those EPC rated E to G
51% increase in service charge costs for a small office compared to the largest assets
68% increase in service charge costs for central London* compared to the ‘Rest of UK’*,
*As defined on page 33 of the report
13% of buildings had a BREEAM sustainability rating
2.7% decrease in total service charge costs in 2022 compared to 2020
75% of service charges in 2021 had lower spend than budgeted

Andrea Hunt, BDO Partner and Service Charge Accounting Lead, said:

“As agile and hybrid working arrangements become ‘the new normal’, employers and the property sector need to think quickly and creatively about how to attract their people back to the office with greater staff benefits and negotiate property service costs and workspace design to reflect usage and ESG factors in the new normal.

“We’ve sought to deliver a truly independent benchmark for service charge costs. In the context of a rapidly changing social, economic, and environmental landscape — as well as ongoing government reviews of property legislation. The challenges ahead for the property sector will be immense, and insights into the future of service charges will be vital.”

Paul Bagust, Head of Property Standards at RICS said:

“It is a great pleasure to support and welcome the new PropCost BDO service charge cost benchmarking initiative. This is a response to the call from industry for better benchmarking and data over many years. The occupation of commercial buildings has changed radically over the past couple of decades. Technology has wrought enormous change; business models and consumer habits have been transformed; environmental concerns have come to the fore; attitudes to health and wellbeing are evolving rapidly; expectations of the workplace are far more sophisticated; and the role of real estate in corporate planning is changing rapidly.”

PropCost Offices 2022

PropCost Offices 2022 analyses expenditure data from 2019 through to the beginning of 2022, providing insight into service charge costs for offices during this period of change.

BDO has considered the impact of ESG through the lens of efficiency and sustainability, observing that service charge costs are running at 20% less for a building with an A-grade efficiency certificate, compared to the least efficient buildings on our data sample.

The full written report launched on Wednesday 8 February in association with RICS. The report download is available here.

ENDS

Note to editors

All service charge data has been collected and independently reviewed by BDO LLP.

The PropCost Office Review has been made possible by the backing of our contributors: JLL, MAPP, British Land, Brookfield Properties, CBRE, Revantage.

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