This week we have been focused on cost management, and whilst there is absolute agreement that service charge costs need to be reduced there is less agreement between clients and occupiers on what that looks like.
In 2019, we had a 1% variance between service charge budgets and actual spend. We run a tight ship. Service charge is probably the most emotive aspect of what we do. It is paid for by occupiers and pays for most of what we do. Those services are almost exclusively not ‘nice to haves’, but contractually binding services owners are obliged to provide. Our job is to pitch the service charge at the right level and to make sure there are not unwelcome balancing charges or accumulated refunds due at the year end.
A small but vocal group of occupiers and their advisers are suggesting that buildings should be mothballed, contracts with trusted suppliers ripped up and valuable members of the site team thrown onto some redundant scrap heap, all in the cause of slashing service charge budgets.
All of these are the wrong thing to do, but we have a golden opportunity to turn the discussion into an industry wide collaboration and to respect the ESG credentials we were all talking about in early March, rather than engaging in a gladiatorial fight to the bottom. I am glad that my colleagues at our competitor firms feel the same way.
Property is still largely about people. Each building or scheme enables people to work, live, shop or play. Those buildings are brought to life and managed by people, and areas of spend which could deliver the greatest savings are security, cleaning, reception, engineering or site management – all delivered by people. You can turn off a robot. You cannot turn off a person.
There were a number of false arguments made by a small number this week, which need answering.
‘Switch everything off and turn it back on again when we return to work. It will save energy costs and allow the engineers to be stood down’. Mothballing a building is not as simple as flicking a switch and the bill for recommissioning plant and machinery, chlorinating water supplies and eliminating contaminated systems left idle over summer will be eye watering. Lifts are designed for frequent, regular use and the impact from prolonged inactivity will cost more than the energy savings. And when we return and want everything ‘switched back on’ in a flash, any engineers who have survived the redundant scrap heap will be hard to find again. That loss of site knowledge for complex buildings with complex systems is material. Savings will not be achieved. That is not a hunch but rooted in years of experience and research. It might be worth doing for a year – not for a few weeks.
‘Get rid of the whole site team’. We are running a skeleton team all braving police checks to reduce long term costs, provide a deterrent and keep the few remaining but important occupiers and members of the public safe. We are not going to compromise on safety. Who will safely evacuate a building that catches fire if there is no one there to do it? Do we really want that amazing building or centre manager who has worked tirelessly for 10 years and loves the building more than anyone else, to be replaced by a pay as you go security guard who will probably turn out to be more expensive in any case?
‘Window cleaning has been stopped. Surely other cleaning can be stopped?’ Yes it can and we have scaled it right back, but even with low levels of occupancy, public health is at the front of all our minds. The areas we are still cleaning are the most heavily used, and whilst the characteristics of this virus are still emerging, we need to keep on top of areas where it could be most easily transmitted.
Reducing or cancelling landscaping, refuse collection, planned works, furloughing non-essential members of the site team and buying energy whilst wholesale prices are low are all contributing to the reductions we have made this week.
The target however needs to be a well thought through reduction in service charge spend, not a slash and burn at all costs approach.
Most of our clients are long term investors who have to stand by the consequences of their decisions into the future. Today’s headline chasing targets are tomorrow’s legacies, and we are not going to create chaos and cost tomorrow for a fleeting reduction today.
We are recommending that our clients do not rewrite budgets and we are not going to reduce spend which will have a materially negative impact or cost more to fix in the long term.
None of us know how long this will go on for, but when it is over we are going to be ready to welcome everyone back to buildings that have not been plundered because we did not remove a key member of the team, with the lifts ready to ride, the receptionist that we have furloughed, trained in the meantime and ready to welcome occupiers back with a smile, the escalators in our shopping centres whisking people up to the top floor and the air conditioning system working at its optimum.
In the meantime, we will have worked tirelessly to reduce the service charge, and who knows we might even have carried out some essential work that was easier to do whilst the building was empty and done so at a fraction of the normal price.
Back at MAPP, through a series of video conference meetings I have managed to see and speak to 328 of the 340 strong team this week. I have thanked them for all they are doing and told them that we will look after them as best as we can if they need to work part time or be furloughed. I hope that I was able to provide a good slug of reassurance, in what is a deeply worrying and challenging time for them all.
When a foot has touched the floor for a brief moment it has been great to see the MAPP team have a virtual tea break or a Friday night cocktail to celebrate a small victory, share information or hang out with someone who is working alone and finding the mental journey tougher than others.
In amongst all of this our remarkable site teams are continuing to keep buildings and centres open and safe, have turned being routinely challenged by the Police into being accepted as essential helpers, whilst dealing with occupiers and members of the public who are understandably low on patience and cheer.
That’s it – off to unpack whatever the supermarket delivery van decided to give us and to make more Eton Mess.