How well have property managers done in the pandemic test? Time to see the results

Commercial tenants will be receiving service charge statements for 2020 over the coming weeks. Should they expect some savings for the lockdown months? There is no one-size-fits-all answer to this question. A lot depends on the extent of office utilization by the tenant, the building itself and action taken by property managers during that time.

Service charge statements are usually delivered by property managers by the end of the first quarter of a year. Next, tenants have usually between two weeks and three months - depending on contractual clauses - in which to audit service charges and ask questions.

Know what you’re paying for
Last year, companies needed to exercise more financial restraint than ever before and looked at office lease liabilities more closely with an eye to cost-saving. “Many tenants may be taken aback by the statements they get and ask property managers what they did to keep maintenance costs low during the lockdown. Some will decide to engage specialized advisors to carry out an audit of service charges, because doing a simple year-on-year comparison of items in an Excel sheet may not be enough to analyse the situation. What is needed is an understanding of the market and experience in commercial building operations, and an understanding of property management regulations. We will be pleased to assist in auditing occupancy costs,” says Artur Sutor, Partner, Head of Office Department, Cresa Poland.

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An office tenant’s liabilities comprise rent, recharged utilities, and service charges, the latter constituting a major financial burden and averaging 20-25% of the base rent.

Tenants can - or even should - ensure savings on shared costs when they sign a lease agreement. “To avoid the risk of running into high costs in the future, they should make sure that the agreement clearly sets out what they will pay for and how such costs will be calculated,” says Artur Sutor. “The lease agreement should include a closed list of items classified as shared costs and make it explicitly clear that tenants pay only for the building’s maintenance, excluding capital expenses.”

A proactive property manager will economize on utilities
As utilities make up as much as 35-37% of service charges, this is where the greatest potential to cut costs really exists. Last spring, for instance, office occupancy levels were at 20-30%. Even now, those levels in most office buildings are still below 100%. What could a property manager do to optimize costs then?

“Good communication is fundamental in any crisis situation. A proactive property manager should keep in touch with tenants to find out how many people will be working on each floor in the coming week or weeks. This information will help him configure appropriate settings of technical systems in order to optimize utilities consumption while ensuring a comfortable environment for users,” says Łukasz Dreger, Senior Associate, Office Department at Cresa Poland, and a licensed property manager with extensive professional experience. “Next, there is the issue of reducing lighting in common areas. When occupancy levels are lower, property managers should turn motion detectors on or have them fitted. If you know how many people are working on each floor, you can also put some lifts out of service. We should also pay less for waste removal. But if there are no differences in utility charges for 2019 and 2020, it’s always a good idea to ask why.”

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A new take on offices
Some costs cannot be brought down even if the office remains shut. They include costs of security services which were severely curtailed following the increase in minimum wages in 2017. “Another expense that would be difficult to cut during the pandemic is the cost of cleaning. It can sometimes be even higher due to the requirement to follow frequent sanitization protocols and to provide sanitizers in the building,” says Łukasz Dreger, who believes that as well as maintaining buildings in a good state of repair and optimizing maintenance costs, property managers should ensure user safety and health. “Lease agreements will increasingly include provisions on preventive measures that companies will expect property managers to take to protect employee health and life. This is a notable new trend. The pandemic has changed our thinking about office building management. Accordingly, relocations and lease renegotiations underway will increasingly have to address such questions as: How well have the property owner and manager done in the pandemic test? Has someone taken care of our finances at that difficult moment and do we feel safe and comfortable in our office building? And, therefore, do we want to stay on there in the years ahead?