For us to understand what will happen to Office Service Charge budgets in 2022, we need to look back. In 2021, the approach taken by office sector landlords to budgeting has been mixed. Whilst the majority presented reduced budgets, compared to 2020, many adopted a ‘business as usual’ approach, issuing increased budgets that have included substantial major works in some cases. To download the Assure Index 2021- Offices click here.
Where reductions have been made, the deferment of major works and a reduction in on-site resources to suit reduced occupancy have been commonly used approaches. Landlords have also budgeted for reduced utility costs, based on their experiences from 2020, and the assumption that 2021 would be similar. However, the recent significant increases in wholesale gas prices have demonstrated the risk that can come with such assumptions.
We have reviewed the movement in service charge budgets for ten high liability buildings occupied by one of our clients, where we have 2019 budgets, and the service charge year is the calendar year. The overall service charge for these buildings increased by 5.7% between 2019 and 2020 and decreased by 2.5% from 2020 to 2021.
Clearly, the biggest concerns for 2022 are the reintroduction of deferred major works, a continuation of measures introduced to create Covid-Secure workplaces, to address the concerns of occupiers returning to the office, and the reintroduction of resources that were temporarily removed to reflect reduced occupancy. These issues and others will result in upwards pressure on costs.
Following these uncertainties, landlords and managing agents may wish to consider the following measures:
– Talk to occupiers. As they formulate their future plans, many will be keen to reduce their property occupancy costs, especially if they plan to adopt a hybrid working model.
– Re-examination of manpower services. These can represent a significant proportion of service charge costs, and the use of new technology may present the opportunity to reduce costs.
– Consultation on major works –Given the changing dynamics and structural challenges of the market, what is the right solution and best approach.
Office Service Charge budgets will be a subject for debate at our free Webinar on 9 November.
To register and book your place on the Assure Consulting Service Charge Webinar, or to receive a copy of the recording post-event please complete the form below: