MAPP believes, and has always believed, that its supply partners form an absolutely critical and integral part of the services that it provides to the sites it manages on behalf of occupiers and clients. As such, we want to work closely with you to navigate the current environment and collectively find solutions to form a working view over the short and medium term.
In 2019, we had a 1% average variance between service charge budgets and actual spend. We have to run a tight ship. Service charge is probably the most emotive aspect of what we do and it is paid for by occupiers. It pays for most of what we do and also what you as supply partners do on our clients behalf.
It is clear, as you will have no doubt seen in the press and heard more directly, that March income from occupiers is significantly down on previous quarters and indeed, may also be substantially reduced for the June quarter. We are preparing for a substantial funding issue.
Many of our clients are long term investors who have to stand by the consequences of their decisions into the future. We are recommending they 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.
A good number of our clients have agreed to provide interim funding in order to ensure that key services can continue to be delivered. For them, it’s important that their building can be put back into use at relatively short notice. However, we have an obligation to manage their funding responsibly and this support is conditional upon removing non-essential or discretionary spend. The target therefore needs to be a well thought through reduction in service charge spend, not a slash and burn at all costs approach.
We hope that will give you some comfort.
However, a difference in sectors is evident. Some parties have been suggesting budget reductions of up to 40% are achievable and retailers are asking for costs to be reduced to near zero. We, as with other agents, are awaiting Revo’s advice on a coordinated response to retail tenants across the board in terms of rental payments and service charge reductions.
Across all sectors we are 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. Some of you have helped us make early interventions including furloughing of team members, for which we thank you.
Although each site will be different, there are some common themes of areas where costs will be scaled back or removed. MAPP’s FM teams have been given a cost management template of 60 areas for consideration. These generally fall into two categories – discretionary or non-essential spend which can be stopped, or measures to increase the natural reductions arising from lower occupancy.
The process will not be easy for any party involved and we expect to be challenged by occupiers about every penny. With current average vacancy rates of 95% to 100% coupled to record lows in funding from occupiers, we are taking a systematic approach to detail, line by line, property by property, across the board. We hope that you will work with us towards the required solutions and that as the overall position becomes clearer in time we can begin the process of increasing services to pre COVID-19 levels.
Our payment processes will take account of your payment terms but with reduced funding affecting cash flow, we are having to make difficult decisions in prioritising payment. Where we envisage prolonged delays, we will be transparent with you. Our teams will be talking to you regularly to be completely open in our approach and to ensure that when, not if, business as usual returns, we maintain those relationships with you into the future.
We appreciate all that you and your team are doing to keep buildings running in these extremely trying circumstances. If you have any questions or concerns, please do not hesitate to contact our Head of Procurement Neil Hoddle, in the first instance, who will help direct your query. His contact details are: firstname.lastname@example.org.
We have assigned senior members of the business to work with you throughout this period to ensure that this receives the attention that it warrants.