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Property costs key to efficient occupancy

10 December 2009

The fifth edition of the IPC Cost Code was launched last week as occupiers face a ‘new landscape’ in which reducing property occupancy is a priority.

Commenting on the publication of the latest update of the IPD cost Code last week, Christopher Headley, MD of IPD Occupiers outlined a ‘new landscape’ that occupiers face including shrinking their portfolios fast, an increased vacancy rate and surplus stock, and up to 30 percent default by sub tenants mainly through company liquidations.  Their businesses also need to be flexible to survive the economic downturn.
The average Total Occupancy Costs of an office builing account for 8-12 percent of an organisations total operating expenses.  The cost of rent represents almost one third of the TOC for most organisaitons. In the current economic circumstances these costs in the spotlight.  The Code provides RE and FMs with a standard terminology to accurate calculate and compare occupancy costs which is applicable globally.
He pointed out that lease lengths of over 20 years had reduced from 21.4 to just 3.5 percent (1992-2008) and those of up to 5 years have grown from 32.6 to 62.5 percent of the market.  He also observed that about one third of break clauses were exercised in 2008.
There had been a major change in attitude within business to retrench and refocus on core business strengths, and this has meant cutting headcounts, managing cash flow and running costs, moving to a shorter financial outlook, refocusing on CRE and FM functions.  There was a recognition that this was a time for change, he said.
The Code which was first launched in 1999 is now in its 5th edition. Changes incorporated in this edition include making a clearer distinction between annual OPEX and annualized CAPEX and a new cost measure to capture IT costs.  This covers infrastructure – cabling, connectivity, etc; hardware – phones, PCs, laptops, etc; software – operating systems, user software, etc;  and support- employment, contractor costs, etc.  There are also three useful case studies from OGC, AXA Group and Centrica and new worked example.

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