Office buildings with the best efficiency and sustainability ratings tend to rack up higher-than-average service charges, a report from accountancy and business advisory firm BDO has found.
The firm’s latest PropCost benchmarking report showed offices with an Outstanding or Excellent BREEAM certification had total service charge costs that were 26% higher than the other offices surveyed. Total service charge costs were 6% higher for offices with an EPC rating of A or B, compared with all other office types.
However, the highest costs overall were seen in the least efficient offices, with EPC ratings of E to G.
Overall, BDO found that service charges for office spaces rose by an average of 10% year-on-year in 2023, amid a significant hike in “soft” service costs such as cleaning and sustainability services, which rose at a greater rate than costs such as security.
However, the cost increase was less pronounced in smaller offices, with the most significant increase seen among the largest offices. Researchers said this could be because smaller offices were not as affected by lower occupation during the pandemic, while larger offices invested most in amenities as part of the return to “normal” office working.
Service charge costs were higher in London than in other regions. On average, office service charge costs in central London were 86% higher than for those located elsewhere in the UK.
Based on median data, the report found that overall service charge costs were split between soft services like cleaning and security (30%) and hard services like mechanical and electrical services (30%). This was followed by management costs (21%), utilities (18%) and insurance (1%).
Andrea Hunt, lead partner for service charge accounting at BDO, said: “One of the more illuminating findings from our report is that office assets with the highest efficiency and sustainability ratings tend to have higher service charge costs. This is likely to be because the most efficient buildings tend to be newer with a more modern design, larger common areas and a higher standard of amenities.”
Hunt added: “As the UK economy faces the strain of limited growth, business leaders will need prioritise reviewing costs as they monitor and adapt their strategies. As such, this report should be particularly useful for both property managers and prospective tenants.”
The figures were compiled in conjunction with the RICS, which reviewed £352m of service charge data for 408 office buildings during the three-year period to 2023.
Photo © FredFroese/iStock
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