Oscar 2009 - Retail

Service Charge Analysis for Shopping Centres

RetailOSCAR2009

“The Oscar report is now widely recognised as the industry guide to the benchmarking of service charges across the UK. It provides owners, managers and occupiers with the opportunity to analyse expenditure across their portfolio. This type of comparative analysis is not an exact science, with each scheme having its own unique characteristics, but it does assist with the identification of schemes or even individual service costs that are above the industry average. Once identified, the variances can be considered in more detail with a view to assessing if cost savings can be achieved at the same time as maintaining an appropriate level of service. 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.”

“All parties involved in property aspects of Shopping Centres will be quick to recognise the importance of cost control and mutual benefits that can result . As the level of communication between landlords and tenants has increased during the downturn, it is important to capitalise on a sense of openness and Jones Lang LaSalle’s OSCAR helps to facilitate this.

For both landlords and tenants, I see continued value to be gained through OSCAR, which remains a key benchmark for the industry and, at Standard Life Investments, we are pleased to continue to contribute to the annual report”.

Landlord Ed JenkinsStandard Life Investments

Service Charge Consultant Lee MasonProfile Consultancy

Foreword Contents

Data ContributorsHammerson, 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

Introduction 4

Executive summary 5

The database 6

Average service charge 8

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

Retail OSCAR 2009 – Service Charge Analysis for Shopping Centres

2 �

Tenant – TBC


4 5

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 EdwardsChair, RICS Service Charge Group

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

Introduction

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.

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 9� 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-

• The total sample size in 2009 has increased from 116 to 158 schemes totalling 5�,752,189 square feet of retail space with a total service charge spend of £279,519,826 and 9� 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.�4 per sq ftB. Enclosed non A/C - £5.58 per sq ft C. Part enclosed A/C - £4.8� per sq ftD. Part enclosed non A/C - £4.�7 per sq ftE. 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 ftB. Enclosed non A/C - £5.61 per sq ft C. Part enclosed A/C - £5.11 per sq ftD. Part enclosed non A/C - £�.59 per sq ft E. Open - £2.57 per sq ft

• 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.

Executive summary


6 7

Table 1.�

All centres-number of centres by location and sizeAll Properties Small Medium Large Very Large Total

Region 1 5 9 �1 2 47

Region 2 7 12 �0 7 56

Region � 7 22 21 5 55

Total 19 4� 82 14 158

The database

158 shopping centres totalling 5�,752,189 square feet with a combined service charge spend of £279,519,826 were included in Retail OSCAR 2009. Of these 158 shopping centres, 9� contributed to the 2008 Retail OSCAR and there are 65 new contributors.

2008 2009 % increase

Number of Centres 116 158 �4%Total Floor Area 41,505,117 5�,752,189 �0%Total Service Charge Spend £201,119,916 £279,519,826 �9%

Retail OSCAR 2009 is the second year that the sample has been split to include the Very Large size category – as a result this report will provide

year on year comparative analysis for the first time for schemes in excess of 750,000 square feet.

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 report has increased from �4 to 4�. Large schemes have seen another year on year increase in terms of sample size increasing from 6� in 2008 to 80 in 2009 and the number of very large schemes has risen from 10 in 2008 to 14 in 2009 further increasing the integrity of the data in relation to this size category.

The total floor area of all centres contributing to Retail OSCAR 2009 represents a 49% increase from 2007.

Table 1.4

Core Centres-number of centres by location and sizeCore Centtres Small Medium Large Very Large Total

Region 1 2 5 24 0 �1

Region 2 � 5 15 5 28

Region � 2 1� 17 2 �4

Total 7 2� 56 7 9�

Table 1.2

Core Centres-number of centres by size and typeCore Centres Enc A/C Enc Non A/C Part Open Part Open Open Total Part EncA/C Part Enc Non A/C

Small 1 � 0 1 2 7

Medium 7 10 0 5 1 2�

Large 28 20 2 � � 56

Very Large 5 2 0 0 0 7

Total 41 �5 2 9 6 9�

Table 1.1

All centres-number of centres by size and typeAll Properties Enc A/C Enc Non A/C Part Open Part Open Open Total Part EncA/C Part Enc Non A/C

Small 5 6 0 4 4 19

Medium 8 19 0 9 7 4�

Large �0 �1 4 9 8 82

Very Large 9 5 0 0 0 14

Total 52 61 4 22 19 158


8 9

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 1�.56%. Management fees have also risen, but to a lesser extent.

Utilities expenditure has increased in � 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.

2009 2008 % increase

Enclosed Air Conditioned £0.65 £0.56 11.6%Enclosed Non Air Conditioned £0.45 £0.40 12.5%Part Enclosed Air conditioned £0.�7 £0.46 -�4%Part Enclosed Non Air Conditioned £0.27 £0.29 -6.7%Open £0.1� £0.10 �0%

Average service charge

All centres

The average service charge (including exceptional expenditure) in 2009 is:- A. Enclosed A/C - £6.�4 per sq ftB Enclosed non A/C - £5.58 per sq ft

C Part enclosed A/C - £4.8�per sq ft D Part enclosed non A/C - £4.�7 per sq ft E Open - £2.89 per sq ft

Core Centres

The average service charge (including exceptional expenditure) in 2009 for the 9� schemes which contributed to both the 2008 and 2009 reports is:-A. Enclosed A/C - £5.85 per sq ftB. Enclosed non A/C - £5.61 per sq ft

C. Part enclosed A/C - £5.11per sq ft D. Part enclosed non A/C - £�.59 per sq ft E. Open - £2.57 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.

All centres-avearge service charge by cost class and type Small Centres Medium Centres Large Centres

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

Fee 0.44 0.�9 0.40 0.24

Site Management 0.88 0.61 0.81 0.66

Management Total 1.31 1.00 1.21 0.91

Soft Services - Security 1.01 1.�0 1.07 0.5�

Soft Services - Cleaning & Environmental 1.07 1.21 1.18 0.5�

Soft Services - Marketing & Promotions 0.58 0.�5 0.�1 0.45

Soft Services Total 2.65 2.86 2.48 1.41

Utilities 0.50 0.�0 0.�7 0.17

Hard Services - M&E 0.5� 0.26 0.27 0.14

Hard Services - Lift & Escalator 0.1� 0.05 0.09 0.04

Hard Services - Suspended Access Equipment 0.0� - 0.01 -

Hard Services - Fabric Repairs & Maintenance 0.�2 0.26 0.�5 0.26

Hard Services Total 0.94 0.58 0.66 0.40

Income -0.10 -0.0� -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

Table 2

Table �

Core Centres - Average service charge by cost class and type (£ per sq ft) 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 0.4� 0.4� 0.40 0.40 0.4� 0.�0 0.28 0.2� 0.2�

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.�0 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.�0 0.74 0.72 0.59 0.65

Soft Services - Cleaning & Environmental 1.04 0.99 0.99 0.9� 1.48 1.12 0.78 0.7� 0.57 0.59

Soft Services - Marketing & Promotions 0.�6 0.27 0.61 0.�6 0.42 0.�0 0.19 0.19 0.�8 0.�5

Soft Services Total 2.51 2.�1 2.69 2.28 �.01 2.7� 1.66 1.60 1.47 1.48

Utilities 0.65 0.56 0.45 0.40 0.�7 0.46 0.27 0.29 0.1� 0.10

Hard Services - M&E 0.69 0.60 0.5� 0.45 0.�0 0.�8 0.20 0.18 0.08 0.11

Hard Services - Lift & Escalator 0.16 0.18 0.11 0.22 0.08 0.12 0.08 0.09 0.04 0.01

Hard Services - Suspended Access Equipment 0.01 0.02 0.06 0.02 - - - 0.02 - -

Hard Services - Fabric Repairs & Maintenance 0.�6 0.�6 0.�6 0.�9 0.17 0.�4 0.�1 0.2� 0.1� 0.11

Hard Services Total 1.12 1.08 0.94 1.02 0.55 0.8� 0.56 0.48 0.21 0.22

Income -0.08 -0.07 - 0.08 -0.06 -0.0� -0.07 -0.02 -0.09 -0.10 -0.07

Insurance 0.11 0.11 0.09 0.08 - - 0.02 0.01 0.01 0.01

Exceptional Expenditure 0.51 0.41 0.62 0.52 0.47 - 0.�0 0.�9 0.07 0.57

Total 5.85 5.42 5.61 5.02 5.11 5.06 �.59 �.26 2.57 2.80

Total Exclude Income 5.91 5.47 5.66 5.06 5.14 5.1� �.60 �.�0 2.64 2.86

Total Exclude Exceptional Expenditure 5.57 5.21 5.�6 4.88 4.87 5.06 �.46 �.21 2.54 2.52


10 11

Management expenditure which includes management fees and site management costs (accounting fees, site resorting costs and health & safety) makes up 19.17 - �1.0�% 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. Utilities expenditure again shows an increase in � out of 5 centre types. Increased utility costs are primarily driven by the increased electricity prices.

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%.

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 ��% with two types showing increases of �.7 to 16.6%. Escalator and lift maintenance and fabric maintenance most consistently show decreases in costs, with other cost classes variableInsurance 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.

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.

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.

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.�6 per sq ft to £4.88 per sq ft – an increase of 9.8%

Part Enclosed Schemes-Air conditionedAverage service charge for this type of centre has decreased by �.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%.

Part Enclosed Schemes-Non Air conditionedAverage service charge costs have increased by 7.8%, from £�.21 per sq ft in 2008 to £�.46 per sq ft in 2009.

Base service charge in this category has increased from £�.26 per sq ft to £�.59 per sq ft – an increase of 10.21%.

Open Schemes

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%

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

2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

Fee 7.7�% 7.85% 7.65% 7.94% 7.82% 8.49% 8.27% 8.64% 8.82% 8.20%

Site Management 14.45% 15.0�% 15.0�% 15.54% 11.�5% 1�.�8% 18.62% 18.15% 22.21% 19.24%

Management Total 22.19% 22.88% 22.68% 2�.49% 19.17% 21.86% 26.89% 26.79% �1.0�% 27.44%

Soft Services - Security 19.68% 19.78% 19.61% 20.02% 21.70% 25.72% 20.50% 22.24% 22.78% 19.�0%

Soft Services - Cleaning & Environmental 17.79% 18.28% 17.72% 18.6�% 28.91% 22.16% 21.68% 22.55% 21.98% 20.95%

Soft Services - Marketing & Promotions 5.40% 4.58% 10.64% 6.88% 8.26% 6.01% 4.06% 4.42% 12.22% 12.54%

Soft Services Total 42.88% 42.64% 47.96% 45.5�% 58.88% 5�.89% 46.24% 49.22% 56.98% 52.79%

Utilities 11.06% 10.�9% 8.0�% 7.99% 7.22% 9.07% 7.44% 8.92% 5.0�% �.58%

Hard Services - M&E 11.78% 10.85% 9.52% 9.0�% 5.82% 7.50% 5.44% 5.49% 2.97% �.86%

Hard Services - Lift & Escalator 1.90% �.1�% 1.24% �.81% 1.55% 2.�2% 1.6�% 2.�4% 0.85% 0.17%

Hard Services - Suspended Access Equipment 0.01% 0.09% 0.1�% 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.�5% �.�8% 6.65% 8.57% 6.96% 4.17% �.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% -1.0�% -0.86% -0.88% -0.61% -1.�0% -0.25% -1.26% -2.54% -2.11%

Insurance 1.06% 1.26% 1.02% 0.9�% 0.00% 0.00% 0.�1% 0.12% 0.19% 0.20%

Exceptional Expenditure 4.69% �.87% 4.45% 2.67% 4.59% 0.00% �.7�% 1.�5% 1.�2% 10.17%

Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Table 4.2

Core Centres - Average service charge cost class by size % Small Medium Large Very Large

2009 2008 2009 2008 2009 2008 2009 2008

Fee 9.02% 7.95% 7.94% 8.46% 7.57% 7.91% 7.04% 6.60%

Site Management 17.0�% 14.99% 16.2�% 17.78% 14.80% 15.08% 10.96% 11.60%

Management Total 26.06% 22.94% 24.17% 26.2�% 22.�7% 22.99% 18.00% 18.20%

Soft Services - Security 24.29% 25.10% 19.70% 20.2�% 19.47% 19.77% 17.�1% 16.85%

Soft Services - Cleaning & Environmental 16.44% 18.�4% 18.08% 18.55% 18.69% 19.19% 19.62% 18.27%

Soft Services - Marketing & Promotions 5.45% 4.56% 10.20% 6.06% 7.�1% 5.88% �.90% 5.45%

Soft Services Total 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% 9.2�% 10.96% 10.81%

Hard Services - M&E 8.90% 6.��% 9.26% 9.50% 10.09% 9.22% 14.70% 15.05%

Hard Services - Lift & Escalator 2.18% 11.59% 2.06% �.�1% 1.24% 2.08% 1.71% 1.86%

Hard Services - Suspended Access Equip 0.00% 0.00% 0.16% 0.09% 0.02% 0.08% 0.02% 0.01%

Hard Services - Fabric Repairs & Maintenance �.04% 4.25% 6.42% 7.15% 6.17% 6.78% �.0�% 4.20%

Hard Services Total 14.1�% 22.17% 17.91% 20.05% 17.52% 18.17% 19.45% 21.1�%

Income -1.55% -0.�6% -1.11% -1.�1% -0.79% -0.98% -0.6�% -1.15%

Insurance 0.77% 0.61% 0.�8% 0.�9% 0.9�% 1.01% �.54% �.54%

Exceptional Expenditure 6.81% 0.06% 1.59% 0.67% 4.9�% 4.7�% 7.86% 6.90%

Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%


12 1�

The shopping centres that have contributed data have been split into � regions:

Total centres• Region 1 London and South East (47 schemes)• Region 2 South, South West, Midlands, East Anglia and Wales

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

Core centres• Region 1 London and South East (�1 schemes)• Region 2 South, South West, Midlands, East Anglia and Wales

(28 schemes)• Region � North, Scotland and Northern Ireland (�4 schemes)

Service charge by location

Core centres

Variations between the three regions are in the main a reflection of the difference in living costs across the UK. As a result Region 1 has consistently had the highest average service charge.

Regions 2 and � have historically tracked each other very closely, however costs in Region � increased significantly in 2007 as a result of a large amount of works being undertaken under the Exceptional Expenditure heading, however in 2008 the gap between the costs in the two regions was closed significantly.

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

Region 2 costs are second highest for Enclosed non air conditioned centres.

Region 1London and the South East – area within the M25, South of London and east of the M� motorway.

Region 2South 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 � North, Scotland and Northern Ireland – area north of Cheshire, Derbyshire, Nottinghamshire and Lincolnshire.

Table 6.1

Enclosed A/C Enclosed A/C Enclosed A/C Enclosed A/C

Region 1 Region 2 Region � Fee 0.45 0.4� 0.48 Site Management 0.88 0.84 0.82 Management Total 1.�� 1.27 1.29 Soft Services - Security 1.27 1.01 1.16 Soft Services - Cleaning & Environmental 1.10 0.95 1.06 Soft Services - Marketing & Promotions 0.4� 0.�0 0.�4 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 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 0.4� 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.�5 Total 6.�0 5.�1 5.90 Total Exclude Income 6.�7 5.�5 5.96 Total Exclude Exceptional Expenditure 6.04 4.96 5.67


14 15

2009 is the second year that Very Large schemes (750,000 sq ft+) have appeared in the Jones Lang LaSalle Retail OSCAR. The total sample size has increased from 10 to 14 this year. !0 centres therefore remain in the Core data set.

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.

Large schemes continue to show the lowest average service charge, with very large centres at £4.77 per sq ft and large centres at £5.04 per sq ft, with Medium schemes at £5.69 per sq ft and Small schemes at £6.75 per sq ft. Qualitative standards of management and opening hours.obviously effect costs in any size of centre and undoubtedly in the smaller specialist centres within the data set.

Service charge by size

Table 5

Core Centres - Service charge by cost class and size of centre Small Medium Large Very Large

2009 2008 2009 2008 2009 2008 2009 2008

Fee 0.61 0.44 0.45 0.45 0.�8 0.�7 0.�4 0.�1

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.�8 1.40 1.1� 1.06 0.86 0.85

Soft Services - Security 1.64 1.64 1.12 1.08 0.98 0.9� 0.8� 0.79

Soft Services - Cleaning & Environmental 1.11 1.0� 1.0� 0.99 0.94 0.89 0.94 0.86

Soft Services - Marketing & Promotions 0.52 0.�0 0.64 0.�4 0.�8 0.29 0.�� 0.�6

Soft Services Total �.12 2.69 2.7� 2.�9 2.29 2.08 1.95 1.90

Utilities 0.51 0.�7 0.52 0.49 0.48 0.4� 0.52 0.51

Hard Services - M&E 0.60 0.�5 0.5� 0.51 0.51 0.4� 0.70 0.71

Hard Services - Lift & Escalator 0.26 0.91 0.15 0.20 0.10 0.11 0.09 0.09

Hard Services - Suspended Access Equipment - - 0.07 0.02 0.01 0.02 0.01 0.00

Hard Services - Fabric Repairs & Maintenance 0.21 0.24 0.�7 0.�8 0.�4 0.�4 0.�4 0.�4

Hard Services Total 0.95 1.24 1.02 1.07 0.88 0.84 0.9� 0.99

Income -0.�7 -0.14 -0.10 -0.11 -0.05 -0.06 -0.07 -0.06

Insurance 0.07 0.06 0.0� 0.04 0.10 0.08 0.20 0.2�

Exceptional Expenditure 0.80 0.02 0.2� 0.14 0.54 0.56 0.52 0.45

Total 6.75 5.60 5.69 5.�� 5.04 4.6� 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.�6

Service charge by type and location

This analysis enables comparison by type across each of the � regions and illustrates the spread of aggregate cost by location and type.

As per the trend described earlier in this report Region 1 schemes have the highest overall service charge costs across the types of centre, with exception of part open, non air conditioned costs.

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

Table 6.2

Enclosed Non A/C Enclosed Non A/C Enclosed Non A/C Enclosed Non A/C

Region 1 Region 2 Region � Fee Site Management Management Total Utilities Hard Services - M&E Hard Services - Lift & Escalator Hard Services - Suspended Access Equipment Hard Services - Fabric Repairs & Maintenance Hard Services Total Soft Services - Security Soft Services - Cleaning & Environmental Soft Services - Marketing & Promotions Soft Services Total Income Insurance Exceptional Expenditure Total Total Exclude Income Total Exclude Exceptional Expenditure

0.46 0.42 0.41 0.9� 0.84 0.77 1.�9 1.26 1.17 1.28 1.01 1.00 1.15 0.88 0.9� 1.02 0.40 0.�9 �.45 2.26 2.�2 0.52 0.�9 0.4� 0.60 0.58 0.44 0.16 0.09 0.05 0.0� 0.01 0.11 0.29 0.�5 0.4� 0.99 0.95 0.88 -0.0� -0.09 -0.09 0.07 0.12 0.08 0.99 0.�� 0.46 6.76 5.01 5.00 6.78 5.07 5.07 6.�5 4.91 4.79

0.40 - 0.40 0.76 - 0.40 1.16 - 0.80 0.91 - 1.�1 1.84 - 1.11 0.11 - 0.74 2.86 - �.16 0.4� - 0.�1 0.26 - 0.�4 0.09 - 0.07 - - - 0.16 - 0.18 0.51 - 0.59 -0.0� - -0.0� - - - 0.47 - - 5.�8 - 4.8� 5.42 - 4.86 4.92 - 4.8�

Table 6.�

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


0.25 0.20 0.�6 0.75 0.56 0.68 1.00 0.75 1.04 0.59 0.51 0.88 0.69 0.56 0.90 0.07 0.17 0.28 1.�5 1.25 1.95 0.22 0.20 0.�1 0.19 0.17 0.21 0.10 - 0.07 - - - 0.54 0.42 0.17 0.8� 0.58 0.44 -0.02 -0.02 -0.02 0.01 - 0.02 - 0.�5 0.29 �.40 2.94 �.9� �.41 2.95 �.94 �.40 2.77 �.76

Table 6.4

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


0.27 0.20 0.21 0.58 0.65 0.�2 0.86 0.85 0.5� 1.01 0.28 0.65 0.64 0.56 0.4� 0.64 0.07 0.46 2.�0 0.89 1.54 0.19 0.06 0.20 0.11 0.06 0.07 0.0� 0.00 0.10 - - - 0.12 0.15 0.10 0.24 0.16 0.27 -0.00 -0.14 -0.11 0.01 0.00 - 0.0� 0.06 0.12 �.61 1.89 2.56 �.62 1.98 2.66 �.60 1.87 2.44

Table 6.5

Open Open Open Open



16 17


18 19

Looking to the future

these effects overall. Pressure on a limited pool of suitably qualified staff, with corresponding increases in market wage rates, may not become an issue as good candidates offering transferable skills could be identified from a wider range of backgrounds than those common amongst current site management personnel.

Lifts and EscalatorsAs with M&E services the lift and escalator services have been affected by the financial climate and have been effectively frozen for the past year or even reduced specifications to minimise overall costs. Costs are likely to come under pressure in the following months as specialist skills come under more pressure with increasing workloads.

The current SAFed guidelines remain in place with insurance inspectors and owners still deferring to the previous LG examinations to undertake group testing at the old annual or 5 yearly frequencies.

Water The industry regulator has agreed to above inflation rises to finance investment in aging infrastructure.

ConclusionThere is a general understanding that the effects of the recession are more persistent than had been imagined two years ago and the supplier markets understand that widespread cost increases will not be tolerated. Wages will generally remain static with limited increases in certain areas and cost savings can still be achieved by careful consideration of specifications, increased use of technology and diligent management of suppliers.

Looking to the future

EnergyWholesale prices have fallen from the peak of 2008 but have returned to a general upward trend with occasional volatile variance from day to day. Network charges are increasing across the UK to pay for the modernisation of utility infrastructure. The introduction of feed-in tariffs provides opportunities for some but the cost of this subsidy is borne by all users.

The carbon reduction commitment (CRC) has proved to be a costly administrative burden in the registration phase and will continue to be so for the evidence packs. However, the provision of clear information on energy consumption is fundamental to energy management and potential cost reductions to the occupiers and landlords advantage.

The roll out of automatic meter readers on gas and smaller electricity supplies will have a direct advantage for the landlords on CRC and occupiers for energy and cost management. The current under capacity of installation teams to meet the CRC early adoption metrics will ease as the year progresses.

SecuritySecurity costs will generally remain constant for the third successive year. Wage increases will be restricted to those sites where recruitment or retention of staff is becoming problematic. Concerns about job security which accompanied the onset of the recession had led to reduced churn levels but a third year of wage freezes may now make relatively minor variations in wage rates a compelling reason to move.

Re-visiting specifications and greater use of technology, especially the use of remote monitoring, can still lead to overall cost reductions even when wage rates are threatening to push costs up.

M&E ServicesAnnual maintenance costs have remained flat as a direct result of the financial climate with tenants looking to minimise their expenditure and landlords being affected by void spaces. In some cases, the scope of maintenance servicing has been reduced in either the level, or frequency of maintenance, to reduce costs from the previous year. Engineer salary levels have broadly remained static, although this is expected to increase in the short/ medium term as the amount of quality skilled engineer’s remains in short supply.

By the end of 2010 all AC systems should have been inspected by an Accredited Energy Assessor to meet legislative requirements. Unfortunately compliance is not particularly high as there is no requirement to display or officially lodge the reports, along with the fact that the financial penalties are low. Nonetheless the reports should provide another useful tool in which the information can be collated and reviewed against the whole building services and fabric to realise potential energy savings and reduction in CO2 levels.

Cleaning and EnvironmentalThe ongoing recession will lead to a third year of zero costs increase for cleaning. Wages account for the majority of total cleaning costs and as cleaning is a generally low paid industry, minimum wage levels become a significant driver. Increases to minimum wage have put pressure on costs but changes to specifications and the use of machinery can mitigate this and allow overall cleaning charges to be maintained at constant levels.

Waste disposal costs continue to rise with year on year above inflation increases in landfill tax being the most significant element. This has encouraged greater efforts to recycle but the recession has led to the collapse in the market for many recycled products which could offset some collection charges. Active efforts to reduce waste going to both landfill and recycling will therefore be the best way of keeping cost increases as low as possible.

Fabric Repairs and MaintenanceTenants continue to increase emphasis on their buildings being presented in excellent order as there is a move to maintain and enhance existing space rather than re-locate. Planned maintenance programmes are now well established and these should have the effect of smoothing year-on-year costs and reducing unplanned expenditure.

Site Management ResourcesWe predict that Site Management Resources will remain fairly constant in terms of cost, with most companies adopting a no or low annual salary increase. The range of skills now expected from facilities and building management personnel, with management of tight budgets and supplier liaison coming increasingly to the fore, require a higher than ever level of training which may increase non-wage costs. Increased support from central teams and the subsequent re-allocation of on site resource may lessen


20 21

Geographical areas

Region 1 London and the South East – area within the

M25, South of London and east of the M3motorway.

Region 2 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.

Cost categoriesThe 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:

Management1. 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

Utilities3. Electricity• Electricity• Fuel (standby electrical power)• Electricity procurement / consultancy

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 Services6. Security• Security guarding and receptionists• Security systems• Post room and mail distribution services7. 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 Services8. M&E Services• M&E maintenance and repairs• M&E inspections and consultancy• Life safety systems maintenance and repairs• Life safety systems inspections and

consultancy9. 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

Other termsExceptional Expenditure• Project works• Refurbishments and major repairs• Draw-down from forward funding accounts• Sinking / replacement / reserve funds• Depreciation /repayment charges• Estate / external service chargesBase-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 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.

Definition of terms

35

Richard AnglissLead Director ofManagement Services+44 (0)20 7399 [email protected]

Nigel WheelerChairman ofManagement Services+44 (0)20 3147 [email protected]

Catherine LambertHead of ShoppingCentre Management Shopping Centre Management+44 (0)20 3147 [email protected]

John BowmanDirector

+44 (0)20 3147 [email protected]

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

Contacts

Shopping Centre Management Group

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

Oscar 2009 - Retail

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