Oscar 2009 - Retail

Retail OSCAR 2009 Service Charge Analysis for Shopping Centres

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

Foreword

Contents

Introduction

4

Executive summary

5

The database

6

the identification of schemes or even individual service costs that are above

Average service charge

8

the industry average. Once identified, the variances can be considered in

Average service charge components by percentage

11

Service charge by location

14

Service charge by size

18

Service charge by type and location

19

Service charge by size and location

20

Service charge by size, location and type

21

Looking to the future

22

Definition of terms

24

Geographical areas

25

Contacts

26

“All parties involved in property aspects of Shopping Centres will be

“The Oscar report is now widely recognised as the industry guide to the

quick to recognise the importance of cost control and mutual benefits

benchmarking of service charges across the UK. It provides owners,

that can result . As the level of communication between landlords and

managers and occupiers with the opportunity to analyse expenditure across

tenants has increased during the downturn, it is important to capitalise

their portfolio. This type of comparative analysis is not an exact science, with

on a sense of openness and Jones Lang LaSalle’s OSCAR helps to

each scheme having its own unique characteristics, but it does assist with

facilitate this.

For both landlords and tenants, I see continued value to be gained

more detail with a view to assessing if cost savings can be achieved at the

through OSCAR, which remains a key benchmark for the industry and,

same time as maintaining an appropriate level of service.

at Standard Life Investments, we are pleased to continue to contribute to the annual report”.

Whilst all parties must accept that the lease terms dictate the parties’ obligations in terms of service delivery and recovery of costs, the Oscar report provides a useful reference point that owners and managers should consider when seeking to achieve best value for money.”

Landlord

Service Charge Consultant

Ed Jenkins

Lee Mason

Standard Life Investments

Profile Consultancy

Data Contributors Hammerson, Standard Life Investments, CSC, Land Securities, British Land, Warner Estate, LaSalle Investment Management, Grosvenor, PRUPIM, SWIP, The Mall, St Martins, Aviva Investors, Orchard Street, Legal & General

We also thank the following managing agents who have assisted us in compiling the necessary service charge data on behalf of their clients: BTW Shiells, CBRE, DTZ, King Sturge, GVA Grimley, Legat Owen

Tenant – TBC

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

Introduction

The accurate measurement and monitoring of costs set out in the OSCAR report is an essential tool for the Chartered Surveyor in developing effective property management strategies and measuring management performance.

The Royal Institution of Chartered Surveyors (RICS) has worked closely with Jones Lang LaSalle to ensure that the new industry Service Charge Cost Categories are compatible with those used in OSCAR. The highly respected OSCAR work is a considerable contribution towards our objective of more consistency and transparency within the property management sector.

Christopher Edwards Chair, RICS Service Charge Group

Executive summary

Service charges in the shopping centre environment continue to be an area of constant debate between landlords and their tenants.

In these increasingly challenging times for retailers, the need to balance value for money in services provided and the level of service provided has never been more important.

Declining retail sales figures and footfall in many parts of the UK, particularly in secondary locations, have put an increased emphasis on landlords to ensure that service charges represent value for money and that the service charge process is 100% transparent to the paying tenants.

Retail OSCAR continues to report service charge expenditure on predominantly a per square foot basis, as this is the UK industry norm. However to get figures on a per square metre basis results need to be multiplied by the conversion factor of 0.09290304

Shopping centres across the UK vary significantly in terms of construction, age, staffing levels, amount of common space, levels of security, number of lifts and escalators etc. All these variables must be considered when considering Retail OSCAR averages to individual properties.

• With the exception of Very Large schemes, overall economies of scale continue to be evident in shopping centres across the UK. From the data we collect, it is unclear is why economies of scale do not exist in Very Large centres, but this is believed to be due to qualitative standards of management and opening hours.

This year service charge costs have been analysed as two data sets:1. For all 158 schemes contributing to 2009 Retail Oscar and for which costs are reported by type of centre (enclosed, part enclosed or open and whether air conditioned).

2. The 93 Core Centres contributing to both 2008 and 2009 Retail Oscar and for which more detailed anlysis and comment is given.

Principal findings of the 2009 Retail OSCAR General• T he total sample size in 2009 has increased from 116 to 158 schemes totalling 53,752,189 square feet of retail space with a total service charge spend of £279,519,826 and 93 schemes contributing to both 2008 and 2009 Retail Oscar.

• The average date of construction for this year’s schemes is 1987 All centres• The average service charge (including exceptional expenditure) in 2009 for all centres is:A. Enclosed A/C - £6.34 per sq ft B. Enclosed non A/C - £5.58 per sq ft C. Part enclosed A/C - £4.83 per sq ft D. Part enclosed non A/C - £4.37 per sq ft E. Open - £2.89 per sq ft Core Centres• The average service charge (including exceptional expenditure) in 2009 for Core Centre is:A. Enclosed A/C - £5.85 per sq ft B. Enclosed non A/C - £5.61 per sq ft C. Part enclosed A/C - £5.11 per sq ft D. Part enclosed non A/C - £3.59 per sq ft E. Open - £2.57 per sq ft

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

The database

158 shopping centres totalling 53,752,189 square feet with a combined

year on year comparative analysis for the first time for schemes in excess

service charge spend of £279,519,826 were included in Retail OSCAR

of 750,000 square feet.

2009. Of these 158 shopping centres, 93 contributed to the 2008 Retail OSCAR and there are 65 new contributors.

The representation of small schemes has increased significantly in this year’s report from 9 to 19. The number of medium schemes in this year’s

2008

2009

% increase

report has increased from 34 to 43. Large schemes have seen another year on year increase in terms of sample size increasing from 63 in 2008

Table 1.1

All centres-number of centres by size and type All Properties Enc A/C Enc Non A/C

0

4

4

19

Medium

8

19

0

9

7

43

Large 30 31

4

9

8

82

to 80 in 2009 and the number of very large schemes has risen from 10 in

Total Floor Area

41,505,117

53,752,189 30%

2008 to 14 in 2009 further increasing the integrity of the data in relation to

Very Large

£279,519,826 39%

this size category.

Total

include the Very Large size category – as a result this report will provide

represents a 49% increase from 2007.

Total

6

158 34%

The total floor area of all centres contributing to Retail OSCAR 2009

Open

5

116

Retail OSCAR 2009 is the second year that the sample has been split to

Part Open Part Enc Non A/C

Small

Number of Centres

Total Service Charge Spend £201,119,916

Part Open Part EncA/C

9

5

0

0

0

14

52

61

4

22

19

158

Open

Total

Table 1.2

Core Centres-number of centres by size and type Core Centres Enc A/C Enc Non A/C

Part Open Part EncA/C

Part Open Part Enc Non A/C

Small

1 3

0

1

2

7

Medium

7

10

0

5

1

23

28

20

2 3 3

56

5

2

0

0

0

7

41 35

2

9

6

93

Large

Very Large

Total

Large Very Large Total

Table 1.3

All centres-number of centres by location and size All Properties

Small

Medium

Region 1

5

9 31

2

47

Region 2

7

12 30

7

56

Region 3 Total

7

22

21

5

55

19

43

82

14

158

Table 1.4

Core Centres-number of centres by location and size Core Centtres Region 1

Small 2

Region 2 3

Medium 5

Large 24

Very Large

Total

0 31

5

15

5

Region 3

2

13

17

2 34

28

Total

7

23

56

7

93

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

Average service charge

All centres

Table 3

Core Centres - Average service charge by cost class and type (£ per sq ft)

The average service charge (including exceptional expenditure) in 2009 is:A. Enclosed A/C - £6.34 per sq ft

C Part enclosed A/C - £4.83per sq ft

B Enclosed non A/C - £5.58 per sq ft

D Part enclosed non A/C - £4.37 per sq ft E Open - £2.89 per sq ft

Table 2 analyses the data for All Centres by cost class and type. All further analysis and commentary is in relation to Core Centres only.

Table 2

All centres-avearge service charge by cost class and type

Small Centres Medium Centres

Large Centres

Enc A/C

Enc Non A/C

Part Open/Part Enc A/C Part Open/ Part Enc Non A/C

Open

2009

2008

2009

2008

2009

2008

2009

2008

2009

2008

Fee

0.45

0.43

0.43

0.40

0.40

0.43

0.30

0.28

0.23

0.23

Site Management

0.85

0.81

0.84

0.78

0.58

0.68

0.67

0.59

0.57

0.54

Management Total

1.30

1.24

1.27

1.18

0.98

1.11

0.97

0.87

0.80

0.77

Soft Services - Security

1.15

1.10

1.10

1.00

1.11

1.30

0.74

0.72

0.59

0.65

Soft Services - Cleaning & Environmental

1.04

0.99

0.99

0.93

1.48

1.12

0.78

0.73

0.57

0.59

Soft Services - Marketing & Promotions

0.36

0.27

0.61

0.36

0.42

0.30

0.19

0.19

0.38

0.35

Enclosed

Part Open

Part Open

Soft Services Total

2.51

2.31

2.69

2.28 3.01

2.73

1.66

1.60

1.47

1.48

Non A/C

Part Enc A/C

Part Enc Part A/C

Open

Utilities

0.65

0.56

0.45

0.40

0.37

0.46

0.27

0.29

0.13

0.10

Fee

0.44

0.39

0.40

0.24

Hard Services - M&E

0.69

0.60

0.53

0.45

0.30

0.38

0.20

0.18

0.08

0.11

Site Management

0.88

0.61

0.81

0.66

Hard Services - Lift & Escalator

0.16

0.18

0.11

0.22

0.08

0.12

0.08

0.09

0.04

0.01

Management Total

1.31

1.00

1.21

0.91

Hard Services - Suspended Access Equipment

0.01

0.02

0.06

0.02

Soft Services - Security

1.01

1.30

1.07

0.53

Hard Services - Fabric Repairs & Maintenance

0.36

0.36

0.36

0.39

0.17

0.34

0.31

0.23

0.13

0.11

Soft Services - Cleaning & Environmental

1.07

1.21

1.18

0.53

Hard Services Total

1.12

1.08

0.94

1.02

0.55

0.83

0.56

0.48

0.21

0.22

Soft Services - Marketing & Promotions

0.58

0.35

0.31

0.45

Income

-0.08

0.08

-0.06

-0.03

-0.07

-0.02

-0.09

-0.10

-0.07

Soft Services Total

2.65

2.86

2.48

1.41

Insurance

0.11

0.11

0.09

0.08

-

0.02

0.01

0.01

0.01

Utilities

0.50

0.30

0.37

0.17

Exceptional Expenditure

0.51

0.41

0.62

0.52

0.47

-

0.30

0.39

0.07

0.57

Hard Services - M&E

0.53

0.26

0.27

0.14

Total

5.85

5.42

5.61

5.02

5.11

5.06 3.59

3.26

2.57

2.80

Hard Services - Lift & Escalator

0.13

0.05

0.09

0.04

Total Exclude Income

5.91

5.47

5.66

5.06

5.14

5.13 3.60

3.30

2.64

2.86

Hard Services - Suspended Access Equipment

0.03

0.01

-

Total Exclude Exceptional Expenditure

5.57

5.21

5.36

4.88

4.87

5.06 3.46

3.21

2.54

2.52

Hard Services - Fabric Repairs & Maintenance

0.32

0.26

0.35

0.26

Hard Services Total

0.94

0.58

0.66

0.40

Income

-0.10

-0.03

-1.04

-0.07

Insurance

0.08

0.01

0.04

0.02

Exceptional Expenditure

0.61

0.47

0.26

0.09

Total

5.58

4.83

4.37

2.89

Total Exclude Income

5.64

4.85

4.79

2.92

Total Exclude Exceptional Expenditure

5.38

4.71

4.31

2.86

-

Core Centres The average service charge (including exceptional expenditure) in 2009 for

C. Part enclosed A/C - £5.11per sq ft

the 93 schemes which contributed to both the 2008 and 2009 reports is:-

D. Part enclosed non A/C - £3.59 per sq ft

A. Enclosed A/C - £5.85 per sq ft

E. Open - £2.57 per sq ft

-0.07 -

Management costs have increased in 4 out of the 5 centre types , Part enclosed and Air Conditioned being the exception. This increase in Management costs is driven primarily by site management resource costs which have risen between 4.94 and 13.56%. Management fees have also risen, but to a lesser extent.

Utilities expenditure has increased in 3 of the centre types, Enclosed both air conditioned and non air conditioned and to open centres. The former represents an increase of between 11.6 - 12.5% with the latter.

-

-

-

-

0.02

-

-

2009

2008

% increase

Enclosed Air Conditioned Enclosed Non Air Conditioned Part Enclosed Air conditioned Part Enclosed Non Air Conditioned Open

£0.65 £0.45 £0.37 £0.27 £0.13

£0.56 11.6% £0.40 12.5% £0.46 -34% £0.29 -6.7% £0.10 30%

B. Enclosed non A/C - £5.61 per sq ft

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

Average service charge components by percentage

Soft Services costs have increased across 4 of the centre types, with open centres showing a marginal decrease. Cleaning has shown the most consistent increase across the centres. Security costs have risen most notably within enclosed centres. This may reflect the requirements to maintain certain service standards in some certain locations over maintaining costs.

Marketing has seen an increase across 4 of the centre types. It is suspected that the increase may be partly attributable to realignment of costs under Soft Services. Additionally the economic downturn has placed an even greater emphasis on increasing centre footfall, dwell time and subsequent driving spend to support retailers via enhanced marketing and events programmes and an increase in activity could be partly responsible for the increase.

Hard Services expenditure does not show a consistent trend across the centres. Three types of centre are showing decreases of between 4. 5 and 33% with two types showing increases of 3.7 to 16.6%.

Escalator and lift maintenance and fabric maintenance most consistently show decreases in costs, with other cost classes variable Insurance costs have remained broadly level with 2008 costs.

To Exceptional Expenditure there is a clear division between three centre types where costs have increased and for part enclosed non air conditioned and open centres where costs have reduced and for the latter very considerably. By definition exceptional expenditure is for one off or project based costs and may fluctuate significantly.

10

With the exception of part enclosed and air conditioned centres all category of centres have seen overall increases in the total service charges (including exceptional expenditure). Details of these changes are as follows: Enclosed Air Conditioned Schemes An increase of 7.9% from £5.42 per sq ft in 2008 to £5.85 psf in 2009 has ensured that this class of shopping centre continues to have the highest running costs in the UK. Base service charge costs i.e. excl. exceptional expenditure, in this category have increased from £5.21 per sq ft to £5.57 per sq ft – an increase of 6.9% Enclosed Non Air Conditioned Schemes The average of the overall service charge for this type of centre has increased by 11.81% from £5.02 per sq ft in 2008 to £5.61 per sq ft in 2009.

Base service charge in this category has increased from £5.36 per sq ft to £4.88 per sq ft – an increase of 9.8% Part Enclosed Schemes-Air conditioned Average service charge for this type of centre has decreased by 3.75% from £5.06 per sq ft in 2008 to £4.87 per sq ft in 2009.

Base service charge in this category has increased from £5.06 per sq ft to £5.11 per sq ft – an increase of 0.99%.

The aging Retail OSCAR sample (average date of construction 1987) has meant that significant sums are having to be spent in the enclosed schemes on major works in order to repair or replace major items of plant and equipment and other elements of the centres in order to provide the high quality, clean and safe environment that the retailers and their shoppers demand.

Part Enclosed Schemes-Non Air conditioned Average service charge costs have increased by 7.8%, from £3.21 per sq ft in 2008 to £3.46 per sq ft in 2009.

Income credited to the service charge shows a wide variation from 2 to 10p per sq ft. The enclosed centres have income of 8p per sq ft,an increase from 2008. Part enclosed centres benefit from 2-3 p per sq ft substatntial decreases from last year whilst open centres income is 10 p per sq ft., an increase from 7p per sq ft.

Open Schemes

Base service charge in this category has increased from £3.26 per sq ft to £3.59 per sq ft – an increase of 10.21%.

Management expenditure which includes management fees and site management costs (accounting fees, site resorting costs and health & safety) makes up 19.17 - 31.03% of total service charge expenditure.

Three types show a decrease, and two an increase. This increase in Open schemes is lead by an increase in site resorting costs.

Soft services, the labour intensive areas of cleaning, security and marketing remain the most significant service charge component by percentage at 42.88 - 58.88% in 2009. This amount is made up of Security 19.61 - 22.78%; Cleaning 17.79 -28.91% and Marketing and promotion 4.06 - 12.22%.

Utilities expenditure again shows an increase in 3 out of 5 centre types.

Increased utility costs are primarily driven by the increased electricity prices.

Table 4.1

Core Centres - Average service charge cost class by type %

Enc A/C

Enc Non A/C

Part Open/Part Enc A/C Part Open/ Part Enc Non A/C

Open

Enc A/C

Enc Non A/C

Part Open/Part Enc A/C Part Open/ Part Enc Non A/C

Open

Fee

2009

2008

2009

2008

2009

2008

2009

2008

2009

2008

7.73%

7.85%

7.65%

7.94%

7.82%

8.49%

8.27%

8.64%

8.82%

8.20%

Site Management

14.45%

15.03%

15.03%

15.54%

11.35%

13.38%

18.62%

18.15%

22.21%

19.24%

Management Total

22.19%

22.88%

22.68%

23.49%

19.17%

21.86%

26.89%

26.79% 31.03%

27.44%

Soft Services - Security

19.68%

19.78%

19.61%

20.02%

21.70%

25.72%

20.50%

22.24%

22.78%

19.30%

Soft Services - Cleaning & Environmental

17.79%

18.28%

17.72%

18.63%

28.91%

22.16%

21.68%

22.55%

21.98%

20.95%

5.40%

4.58%

10.64%

6.88%

8.26%

6.01%

4.06%

4.42%

12.22%

12.54%

Soft Services Total

Soft Services - Marketing & Promotions

42.88%

42.64%

47.96%

45.53%

58.88%

53.89%

46.24%

49.22%

56.98%

52.79%

Utilities

11.06%

10.39%

8.03%

7.99%

7.22%

9.07%

7.44%

8.92%

5.03% 3.58%

Hard Services - M&E

11.78%

10.85%

9.52%

9.03%

5.82%

7.50%

5.44%

5.49%

2.97% 3.86%

Hard Services - Lift & Escalator

1.90% 3.13%

1.24% 3.81%

1.55%

2.32%

1.63%

2.34%

0.85%

0.17%

Hard Services - Suspended Access Equipment

0.01%

0.09%

0.13%

0.06%

0.00%

0.00%

0.00%

0.08%

0.00%

0.00%

Hard Services - Fabric Repairs & Maintenance

5.45%

5.91%

5.84%

7.35% 3.38%

6.65%

8.57%

6.96%

4.17% 3.88%

Hard Services Total

19.15%

19.98%

16.72%

20.26%

10.75%

16.48%

15.64%

14.87%

7.99%

7.92%

Income

-1.01%

-1.03%

-0.86%

-0.88%

-0.61%

-1.30%

-0.25%

-1.26%

-2.54%

-2.11%

Insurance

1.06%

1.26%

1.02%

0.93%

0.00%

0.00%

0.31%

0.12%

0.19%

0.20%

Exceptional Expenditure

4.69% 3.87%

4.45%

2.67%

4.59%

0.00% 3.73%

1.35%

1.32%

10.17%

Total

100.00%

100.00% 100.00% 100.00% 100.00%

100.00%

100.00%

100.00%

100.00% 100.00%

This type of centre has seen the smallest increase in 2009 rising 0.8% from £2.52 per sq ft in 2008 to £2.54 per sq ft.

Base service charge in this category has decreased from £2.80 per sq ft to £2.57 per sq ft – a decrease of 8.18%

11

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

Service charge by location

The shopping centres that have contributed data have been split

Table 4.2

into 3 regions: Core Centres - Average service charge cost class by size %

Small

Medium

Large

Very Large

Total centres

Core centres

• Region 1 London and South East (47 schemes)

• Region 1 London and South East (31 schemes)

• Region 2 South, South West, Midlands, East Anglia and Wales

• Region 2 South, South West, Midlands, East Anglia and Wales

2009

2008

2009

2008

2009

2008

2009

2008

9.02%

7.95%

7.94%

8.46%

7.57%

7.91%

7.04%

6.60%

Site Management

17.03%

14.99%

16.23%

17.78%

14.80%

15.08%

10.96%

11.60%

Management Total

26.06%

22.94%

24.17%

26.23%

22.37%

22.99%

18.00%

18.20%

Soft Services - Security

24.29%

25.10%

19.70%

20.23%

19.47%

19.77%

17.31%

16.85%

Soft Services - Cleaning & Environmental

16.44%

18.34%

18.08%

18.55%

18.69%

19.19%

19.62%

18.27%

5.45%

4.56%

10.20%

6.06%

7.31%

5.88% 3.90%

5.45%

46.19%

48.00%

47.98%

44.84%

45.47%

44.85%

40.82%

40.57%

Utilities

7.60%

6.59%

9.08%

9.12%

9.58%

9.23%

10.96%

10.81%

Hard Services - M&E

8.90%

6.33%

9.26%

9.50%

10.09%

9.22%

14.70%

15.05%

Hard Services - Lift & Escalator

2.18%

11.59%

2.06% 3.31%

1.24%

2.08%

1.71%

1.86%

Variations between the three regions are in the main a

Hard Services - Suspended Access Equip

0.00%

0.00%

0.16%

0.09%

0.02%

0.08%

0.02%

0.01%

reflection of the difference in living costs across the UK.

London and the South East – area

Hard Services - Fabric Repairs & Maintenance 3.04%

4.25%

6.42%

7.15%

6.17%

6.78% 3.03%

4.20%

As a result Region 1 has consistently had the highest

within the M25, South of London

average service charge.

and east of the M3 motorway.

Fee

Soft Services - Marketing & Promotions Soft Services Total

Hard Services Total

14.13%

22.17%

17.91%

20.05%

17.52%

18.17%

19.45%

21.13%

Income

-1.55%

-0.36%

-1.11%

-1.31%

-0.79%

-0.98%

-0.63%

-1.15%

Insurance

0.77%

0.61%

0.38%

0.39%

0.93%

1.01% 3.54% 3.54%

Exceptional Expenditure

6.81%

0.06%

1.59%

0.67%

4.93%

4.73%

7.86%

6.90%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

Total

(56 schemes) • Region 3 North, Scotland and Northern Ireland (55 schemes)

(28 schemes) • Region 3 North, Scotland and Northern Ireland (34 schemes)

Core centres

Regions 2 and 3 have historically tracked each other

Region 1

Region 2

very closely, however costs in Region 3 increased

South and South West, Wales,

significantly in 2007 as a result of a large amount

Midlands and East Anglia – all areas

of works being undertaken under the Exceptional

north and west of ‘London and the

Expenditure heading, however in 2008 the gap between

South East’, and south of the ‘North,

the costs in the two regions was closed significantly.

Scotland and Northern Ireland.’

Region 3 costs are the second highest for Enclosed air conditioned, part enclosed and open centres.

Region 3 North, Scotland and Northern Ireland – area north of Cheshire,

12

Region 2 costs are second highest for Enclosed non air

Derbyshire, Nottinghamshire and

conditioned centres.

Lincolnshire.

13

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

Service charge by type and location

Service charge by size

2009 is the second year that Very Large schemes (750,000 sq ft+) have

Large schemes continue to show the lowest average service charge, with

This analysis enables comparison by type across each of the 3 regions and

appeared in the Jones Lang LaSalle Retail OSCAR. The total sample size

very large centres at £4.77 per sq ft and large centres at £5.04 per sq ft, with

illustrates the spread of aggregate cost by location and type.

has increased from 10 to 14 this year. !0 centres therefore remain in the Core

Medium schemes at £5.69 per sq ft and Small schemes at £6.75 per sq ft.

data set.

Qualitative standards of management and opening hours.obviously effect

As per the trend described earlier in this report Region 1 schemes have

costs in any size of centre and undoubtedly in the smaller specialist centres

the highest overall service charge costs across the types of centre, with

within the data set.

exception of part open, non air conditioned costs.

It remains clear that economies of scale do exist in shopping centres.

Generally speaking the larger the floor area of the scheme the lower the average service charge is on a rate per sq ft. This is a direct result of proportionately more retail floor space being serviced from the common areas in larger schemes.

Core Centres - Average service charge by cost, type and location Table 5

Table 6.1

Core Centres - Service charge by cost class and size of centre

2009

2008

Medium

2009

2008

Large

2009

2008

Enclosed A/C

Very Large

2009

2008

Enclosed A/C

Enclosed A/C

Enclosed A/C

Region 1

Region 2

Region 3

Fee

0.45

0.43

0.48

Site Management

0.88

0.84

0.82

Management Total

1.33

1.27

1.29

Fee

0.61

0.44

0.45

0.45

0.38

0.37

0.34

0.31

Site Management

1.15

0.84

0.92

0.95

0.75

0.70

0.52

0.54

Management Total

1.76

1.28

1.38

1.40

1.13

1.06

0.86

0.85

Soft Services - Security

1.27

1.01

1.16

0.79

Soft Services - Cleaning & Environmental

1.10

0.95

1.06

Soft Services - Marketing & Promotions

0.43

0.30

0.34

Soft Services Total

2.77

2.24

2.49

Utilities

0.71

0.54

0.68

Hard Services - M&E

0.79

0.62

0.65

Soft Services - Security

1.64

1.64

1.12

1.08

0.98

0.93

0.83

Soft Services - Cleaning & Environmental

1.11

1.03

1.03

0.99

0.94

0.89

0.94

0.86

Soft Services - Marketing & Promotions

0.52

0.30

0.64

0.34

0.38

0.29

0.33

0.36

Soft Services Total

3.12

2.69

2.73

2.39

2.29

2.08

1.95

1.90

Utilities

0.51

0.37

0.52

0.49

0.48

0.43

0.52

0.51

Hard Services - M&E

0.60

0.35

0.53

0.51

0.51

0.43

0.70

0.71

Hard Services - Lift & Escalator

0.26

0.91

0.15

0.20

0.10

0.11

0.09

0.09

0.07

0.02

0.01

0.02

0.01

0.00

0.37

0.38

0.34

0.34

0.34

0.34

Hard Services - Suspended Access Equipment Hard Services - Fabric Repairs & Maintenance

14

Small

- 0.21

- 0.24

Hard Services Total

0.95

1.24

1.02

1.07

0.88

0.84

0.93

0.99

Income

-0.37

-0.14

-0.10

-0.11

-0.05

-0.06

-0.07

-0.06

Insurance

0.07

0.06

0.03

0.04

0.10

0.08

0.20

0.23

Exceptional Expenditure

0.80

0.02

0.23

0.14

0.54

0.56

0.52

0.45

Total

6.75

5.60

5.69

5.33

5.04

4.63

4.77

4.69

Total Exclude Income

6.85

5.62

5.76

5.40

5.08

4.68

4.80

4.74

Total Exclude Exceptional Expenditure

6.29

5.60

5.60

5.29

4.80

4.41

4.40

4.36

Hard Services - Lift & Escalator

0.17

0.12

0.18

Hard Services - Suspended Access Equipment

0.01

0.00

0.01

Hard Services - Fabric Repairs & Maintenance

0.43

0.25

0.40

Hard Services Total

1.27

0.92

1.15

Income

-0.09

-0.06

-0.10

Insurance

0.07

0.07

0.15

Exceptional Expenditure

0.72

0.56

0.35

Total

6.30

5.31

5.90

Total Exclude Income

6.37

5.35

5.96

Total Exclude Exceptional Expenditure

6.04

4.96

5.67

15

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

Table 6.2

Enclosed Non A/C

Table 6.4

Enclosed Non A/C

Enclosed Non A/C

Enclosed Non A/C

Part Open/Enc Non A/C Part Open/Enc Non A/C Part Open/Enc Non A/C

Region 1

Region 2

Region 3

Region 1

Region 2

Region 3

Fee

0.46

0.42

0.41

Fee

0.25

0.20

0.36

Management Site

0.93

0.84

0.77

Management Site

0.75

0.56

0.68

Management Total

1.39

1.26

1.17

Management Total

1.00

0.75

1.04

Utilities

1.28

1.01

1.00

Utilities

0.59

0.51

0.88

Hard Services - M&E

1.15

0.88

0.93

Hard Services - M&E

0.69

0.56

0.90

Hard Services - Lift & Escalator

1.02

0.40

0.39

Hard Services - Lift & Escalator

0.07

0.17

0.28

3.45

Hard Services - Suspended Access Equipment

2.26

2.32

Hard Services - Suspended Access Equipment

1.35

1.25

1.95

Hard Services - Fabric Repairs & Maintenance

0.52

0.39

0.43

Hard Services - Fabric Repairs & Maintenance

0.22

0.20

0.31

Hard Services Total

0.60

0.58

0.44

Hard Services Total

0.19

0.17

0.21

Soft Services - Security

0.16

0.09

0.05

Services - Security Soft

0.10

-

0.07

Soft Services - Cleaning & Environmental

0.03

0.01

0.11

Services - Cleaning & Environmental Soft

Services - Marketing & Promotions Soft

0.29

0.35

0.43

Soft Services - Marketing & Promotions

-

-

-

0.54

0.42

0.17

Services Total Soft

0.99

0.95

0.88

Services Total Soft

0.83

0.58

0.44

Income

-0.03

-0.09

-0.09

Income

-0.02

-0.02

-0.02

Insurance

0.07

0.12

0.08

Insurance

0.01

-

0.02

Exceptional Expenditure

0.99

0.33

0.46

Exceptional Expenditure

-

0.35

0.29

Total

6.76

5.01

5.00

Total

3.40

2.94

3.93

Total Exclude Income

6.78

5.07

5.07

3.41

Total Exclude Income

2.95

3.94

Total Exclude Exceptional Expenditure

6.35

4.91

4.79

3.40

Total Exclude Exceptional Expenditure

2.77

3.76

Open

Open

Open

Table 6.5

Table 6.3

Part Enclosed A/C

Part Open/Enclosed A/C Part Open/Enclosed A/C Part Open/Enclosed A/C

Open

Region 1

Region 2

Region 3

Fee

0.40

-

0.40

Fee

0.27

0.20

0.21

Management Site

0.76

-

0.40

Management Site

0.58

0.65

0.32

Management Total

1.16

-

0.80

Management Total

0.86

0.85

0.53

Utilities

0.91

-

1.31

Utilities

1.01

0.28

0.65

Hard Services - M&E

1.84

-

1.11

Hard Services - M&E

0.64

0.56

0.43

Hard Services - Lift & Escalator

0.11

-

0.74

Hard Services - Lift & Escalator

0.64

0.07

0.46

Hard Services - Suspended Access Equipment

2.86

-

3.16

Hard Services - Suspended Access Equipment

2.30

0.89

1.54

Hard Services - Fabric Repairs & Maintenance

0.43

-

0.31

Hard Services - Fabric Repairs & Maintenance

0.19

0.06

0.20

Hard Services Total

0.26

-

0.34

Hard Services Total

0.11

0.06

0.07

Soft Services - Security

0.09

-

0.07

Services - Security Soft

0.03

0.00

0.10

-

-

-

-

-

-

0.16

-

0.18

0.12

0.15

0.10

Soft Services - Cleaning & Environmental Services - Marketing & Promotions Soft

Region 1

Region 2

Region 3

Services - Cleaning & Environmental Soft Services - Marketing & Promotions Soft

Services Total Soft

0.51

-

0.59

Services Total Soft

0.24

0.16

0.27

Income

-0.03

-

-0.03

Income

-0.00

-0.14

-0.11

-

-

-

Insurance

0.01

0.00

-

Exceptional Expenditure

0.47

-

-

Exceptional Expenditure

0.03

0.06

0.12

Total

5.38

-

4.83

3.61 Total

1.89

2.56

Total Exclude Income

5.42

-

4.86

3.62

Total Exclude Income

1.98

2.66

Total Exclude Exceptional Expenditure

4.92

-

4.83

3.60

Total Exclude Exceptional Expenditure

1.87

2.44

Insurance

16

Part Enclosed Non A/C

17

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

Looking to the future

Looking to the future

Energy

By the end of 2010 all AC systems should have been inspected by an

these effects overall. Pressure on a limited pool of suitably qualified staff,

Wholesale prices have fallen from the peak of 2008 but have returned to

Accredited Energy Assessor to meet legislative requirements. Unfortunately

with corresponding increases in market wage rates, may not become an

a general upward trend with occasional volatile variance from day to day.

compliance is not particularly high as there is no requirement to display or

issue as good candidates offering transferable skills could be identified from

Network charges are increasing across the UK to pay for the modernisation

officially lodge the reports, along with the fact that the financial penalties are

a wider range of backgrounds than those common amongst current site

of utility infrastructure. The introduction of feed-in tariffs provides

low. Nonetheless the reports should provide another useful tool in which the

management personnel.

opportunities for some but the cost of this subsidy is borne by all users.

information can be collated and reviewed against the whole building services and fabric to realise potential energy savings and reduction in CO2 levels.

The carbon reduction commitment (CRC) has proved to be a costly

Lifts and Escalators As with M&E services the lift and escalator services have been affected by

administrative burden in the registration phase and will continue to be so for

Cleaning and Environmental

the evidence packs. However, the provision of clear information on energy

The ongoing recession will lead to a third year of zero costs increase for

even reduced specifications to minimise overall costs. Costs are likely to

consumption is fundamental to energy management and potential cost

cleaning. Wages account for the majority of total cleaning costs and as

come under pressure in the following months as specialist skills come under

reductions to the occupiers and landlords advantage.

cleaning is a generally low paid industry, minimum wage levels become a

more pressure with increasing workloads.

the financial climate and have been effectively frozen for the past year or

significant driver. Increases to minimum wage have put pressure on costs The roll out of automatic meter readers on gas and smaller electricity

but changes to specifications and the use of machinery can mitigate this and

The current SAFed guidelines remain in place with insurance inspectors and

supplies will have a direct advantage for the landlords on CRC and

allow overall cleaning charges to be maintained at constant levels.

owners still deferring to the previous LG examinations to undertake group

occupiers for energy and cost management. The current under capacity of

testing at the old annual or 5 yearly frequencies.

installation teams to meet the CRC early adoption metrics will ease as the

Waste disposal costs continue to rise with year on year above inflation

year progresses.

increases in landfill tax being the most significant element. This has

Water

encouraged greater efforts to recycle but the recession has led to the Security

The industry regulator has agreed to above inflation rises to finance

collapse in the market for many recycled products which could offset some

investment in aging infrastructure.

Security costs will generally remain constant for the third successive

collection charges. Active efforts to reduce waste going to both landfill and

year. Wage increases will be restricted to those sites where recruitment

recycling will therefore be the best way of keeping cost increases as low as

Conclusion

or retention of staff is becoming problematic. Concerns about job security

possible.

There is a general understanding that the effects of the recession are more

which accompanied the onset of the recession had led to reduced churn

18

persistent than had been imagined two years ago and the supplier markets

levels but a third year of wage freezes may now make relatively minor

Fabric Repairs and Maintenance

variations in wage rates a compelling reason to move.

Tenants continue to increase emphasis on their buildings being presented

will generally remain static with limited increases in certain areas and cost

in excellent order as there is a move to maintain and enhance existing

savings can still be achieved by careful consideration of specifications,

Re-visiting specifications and greater use of technology, especially the use

space rather than re-locate. Planned maintenance programmes are now

increased use of technology and diligent management of suppliers.

of remote monitoring, can still lead to overall cost reductions even when

well established and these should have the effect of smoothing year-on-year

wage rates are threatening to push costs up.

costs and reducing unplanned expenditure.

M&E Services

Site Management Resources

Annual maintenance costs have remained flat as a direct result of the financial

We predict that Site Management Resources will remain fairly constant

climate with tenants looking to minimise their expenditure and landlords being

in terms of cost, with most companies adopting a no or low annual salary

affected by void spaces. In some cases, the scope of maintenance servicing

increase. The range of skills now expected from facilities and building

has been reduced in either the level, or frequency of maintenance, to reduce

management personnel, with management of tight budgets and supplier

costs from the previous year. Engineer salary levels have broadly remained

liaison coming increasingly to the fore, require a higher than ever level of

static, although this is expected to increase in the short/ medium term as the

training which may increase non-wage costs. Increased support from central

amount of quality skilled engineer’s remains in short supply.

teams and the subsequent re-allocation of on site resource may lessen

understand that widespread cost increases will not be tolerated. Wages

19

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

Geographical areas

Definition of terms

Region 1 Cost categories The Royal Institution of Chartered Surveyors Service Charge Code came into effect on 1 April 2007 and incorporates 22 standard cost categories. From discussions with our clients and other managing agents, it would appear that the Code has been fully embraced and there should therefore be greater uniformity in the way that service charges are presented across the industry.

The data presented within this year’s Retail OSCAR is for the year ending December 2008.

We detail below for ease of reference the items included within each category: Management 1. Management • Management fees • Accounting and audit fees NB – this currently incorporates the ‘Accounting Fees’ cost category as defined within the RICS Service Charge Code 2. Site Management Resources • FM Staff /Concierge / Receptionist costs • Site accommodation (rent / service charge / rates) • Office costs (telephones / stationery / petty cash) • Help desk / call centre / information centre • Landlord’s health, safety and environmental risk assessments, audits and reviews NB – this currently incorporates the ‘Health, Safety and Environmental’ cost category as defined within the RICS Service Charge Code Utilities 3. Electricity • Electricity • Fuel (standby electrical power) • Electricity procurement / consultancy

20

4. Gas • Gas and heating fuel oil • Gas / fuel oil procurement / consultancy NB – this currently incorporates the ‘Fuel Oil (Heating)’ cost category as defined within the RICS Service Charge Code 5. Water • Water and sewerage charges • Water consultancy Soft Services 6. Security • Security guarding and receptionists • Security systems • Post room and mail distribution services 7. Cleaning & Environmental • Internal / external / window cleaning • Hygiene services / toiletries • Carpets / mats hire • Waste management • Pest control • Floral displays and landscaping • Suspended access equipment, maintenance and repairs NB – this currently incorporates the ‘Suspended Access Equipment’ cost category as defined within the RICS Service Charge Code Hard Services 8. M&E Services • M&E maintenance and repairs • M&E inspections and consultancy • Life safety systems maintenance and repairs • Life safety systems inspections and consultancy 9. Lifts & Escalators • Lift maintenance and repairs • Lift inspections and consultancy • Escalator maintenance and repairs • Escalator inspections and consultancy

10. Fabric Repairs & Maintenance • Internal / external repairs and maintenance • Re-decoration

London and the South East – area within the

Other terms Exceptional Expenditure • Project works • Refurbishments and major repairs • Draw-down from forward funding accounts • Sinking / replacement / reserve funds • Depreciation /repayment charges • Estate / external service charges Base-level Service Charge • The full service charge costs of running a building excluding exceptional expenditure.

This provides a measure of the cost of providing routine operational services to a building.

Full Service Charge Costs • The full expenditure running through a service charge account, including exceptional expenditure, but excluding any interest receipts and insurance costs.

Air-Conditioned • A building in which cooling and heating are provided in the majority of the lettable space

Region 2

M25, South of London and east of the M3 motorway.

South and South West, Wales, Midlands and East Anglia – all areas north and west of ‘London and the South East’, and south of the ‘North, Scotland and Northern Ireland.’

Region 3 North, Scotland and Northern Ireland – area north of Cheshire, Derbyshire, Nottinghamshire and Lincolnshire.

via the landlord’s central plant installation.

Non Air-Conditioned • A building in which only the heating is provided in the majority of lettable space via the landlord’s central plant installation.

Tenant’s supplemental air-conditioning plant is disregarded in this context.

21

Shopping Centre Management Group Contacts Richard Angliss Lead Director of Management Services +44 (0)20 7399 5168 richard.angliss@eu.jll.com

Nigel Wheeler Chairman of Management Services +44 (0)20 3147 1395 nigel.wheeler@eu.jll.com

Catherine Lambert Head of Shopping Centre Management +44 (0)20 3147 1263 catherine.lambert@eu.jll.com

John Bowman Director Shopping Centre Management +44 (0)20 3147 1255 john.bowman@eu.jll.com

Jones Lang LaSalle, 40 Bank Street, Canary Wharf, London E14 5EG +44 (0)20 3147 6040

COPYRIGHT Š JONES LANG LASALLE, IP, INC. 2011. All Rights Reserved. While every effort has been made to ensure accuracy and completeness, we cannot offer any warranty that factual errors may have occurred. Jones Lang LaSalle cannot accept any legal responsibility for any damage or loss suffered by reason of any inaccuracy or incorrectness concerning information and material in this report.

35