Management Costs:  What’s Included

Landlords and managing agents charge fees for administering service charges, but what does that cover?  Management costs extend beyond the fee itself.  They often include annual accounting fees for service charge reconciliation, salaries for on-site staff like Building Managers, and expenses associated with management offices.  Understanding these elements is crucial to determine if your management costs are reasonable.

2024 Assure Index Office:  A Snapshot of Management Costs

The 2024 edition of the Assure Index Offices reports the following management costs for the top 50 (Tier 1) office properties Assure manages:

Management costs have slightly decreased as a percentage, down from 17.73% of Tier 1 costs in 2023.  However, the cost per square foot has risen from £2.27.  Notably, there’s significant variation between buildings.  Some properties have management fees exceeding £2.00 psf, and Site Management Resource costs exceeding £5.00 psf.

Management Fees:  Fairness Over Percentages

Management fees should reflect the actual costs and overheads of services, including a fair profit margin, according to the RICS Professional Statement.  While the RICS advocates for fixed fees, some leases still tie management fees to a percentage of costs, especially under direct landlord management, which can compromise fairness and transparency.

Site Management Resources:  Ensuring Cost Efficiency

Costs in this category cover on-site staff essential for daily operations, such as Building Managers, Technical Managers, and Administrators for larger properties.  It may also include off-site roles like Regional Facilities Managers.  Evaluate whether the management team off-site or remote is necessary for efficient operations and ensure site staff aren’t duplicating tasks covered by the management fee.  This category also includes service delivery staff, such as reception and mailroom personnel, along with management office costs (rent and rates), IT and telecom systems, and any help desk services provided.

Health, Safety & Environmental:  Balancing Safety and Cost

The managing agent or landlord must comply with health and safety legislation, accounting for costs related to various compliance inspections and risk assessments.  Some requirements are prescriptive, like the five-year electrical installation test, while others rely on risk management, leading to varying inspection frequencies.  Although no tenant wants their landlord to cut corners regarding health and safety, some may be overly cautious.  Therefore, the nature and frequency of inspections should be scrutinised, especially when costs are high.

Value-Added Services:  Enhancements or Hidden Costs?

In recent years, managing agents have broadened their offerings to landlords, providing more than just service charge management.  Many adopt an integrated facilities management approach, delivering essential services like cleaning and security.  Typically, managing agents utilise in-house consultancy for property inspections, developing maintenance programs, managing major projects, and employing specialist procurement teams for service contracts.  While it’s logical for managing agents to maximise income from each property, it’s vital to assess the reasonableness of charges.  They must demonstrate that their services offer value for money, especially when not competitively tendered, and avoid duplicating costs covered by the management fee.

Factors Driving Management Cost Increases

A significant portion of management costs arises from staff costs, whether for the Property Manager and back-office staff (covered by the management fee) or site staff.  Wage increases can substantially impact total costs.  As highlighted in our previous blog post, living wages – especially the London Living Wage – have risen significantly, with a 10% increase from 2023 to 2024 and another 4% expected in 2025.  Therefore, it’s crucial to keep resources allocated for building management lean, maintaining only the minimum necessary to deliver services at an acceptable standard.  Our data indicates that management costs are generally higher when landlords manage buildings directly rather than through a managing agent.  Some possible reasons include:

• Landlord-managed properties typically have management fees around 10%.
• Landlords often employ larger on-site teams to manage their buildings.
• Unlike managing agents, landlords don’t face competitive pressure when selecting service providers.

The lease will outline the landlord’s right to manage directly, including related fees and costs.  However, tenants retain the right to challenge costs they believe are excessive.

What Should You Do If You Think Your Management Costs Are Too High?

Management costs can vary widely, making it challenging to determine whether a building is expensive compared to other areas of expenditure.  If your management costs seem high relative to the Assure Index, it may warrant further scrutiny to assess whether these costs are justified.  

Assure Consulting can help you review management and property costs more broadly.  Our experienced consultants will leverage our extensive data to evaluate and challenge costs, ensuring you receive the best value and identify savings wherever possible.

To find out how Assure can help with reducing your occupancy costs, download one of our free eBooks or fill out the contact form below