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Analysis: IPMS standard could hike up rents for UK firms

Buildings
Phot: Shutterstock

18 January 2016 | Herpreet Grewal

newsdesk@fm-world.co.uk


The International Property Standard (IPMS), was consulted on in December 2014 and introduced for commercial property on 1st January – with UK chartered surveyor Tenant Advisory Group, warning that the new standards could cost UK businesses £1 billion a year. 


Martyn Markland, principal consultant to the company, which acts for commercial tenants, has highlighted the concerns many in the industry he claims share but are unwilling to voice in public.


The issue affects every business that leases office space as well as the professionals that work in the sector including lawyers, architects, and FMs.


Markland said: “While the changes will undoubtedly be welcomed by landlords and developers, I suspect most businesses are oblivious to the impact they will have on rents and other property costs.” 


The standards have been set up by the International Property Measurement Standards Coalition (IPMSC), an international group of professional and not-for-profit organisations working together to develop and embed a single property measurement standard - whose members include Core Net, JLL and others. 


According to the Royal Institute for Chartered Surveyors (RICS) of the UK (a part of the coalition), while the standard is not mandatory in the marketplace, countries like Dubai are already factoring it into its legislation. The coalition says that the standard was officially launched on 1 January. Compliance will not initially be enforced.


Upward pressure 

Mark Whittaker, deputy chair of the BIFM’s North Region, says: “The whole issue of the new IPMS 3 measurement is something that facilities managers need to be aware of, particularly given the potential upward pressure on office rents and frequency of disputes.”

  

Markland says the replacement of the existing measurement standard applying to offices – Net Internal Area (NIA) – is unnecessary. He points out that the UK, and most of the world’s property markets, use NIA because it reflects the true value of space from the end user’s perspective.


“The IPMS alternative to NIA requires columns, buttresses, party walls and other structural intrusions to be included in the floor area measurement, which effectively means that business owners will now be paying for space they cannot physically use.”


But otheres disagree. Ken Creighton, director of Professional Standards, RICS, said: “It is simply untrue to suggest that IPMS will result in increased office rents. Why else would large corporate occupiers such as Vodafone, Xerox, BASF, IMF, International Hotels Group and Serco have welcomed its introduction? They rightly tell us it will improve transparency in property markets.”


More transparency

Under the old system the lettable floor area of the office used in the example was 1,745 square feet (NIA), but now it is set to rise by 12 per cent to 1,955 sq ft under IPMS. Unless the landlord reduces previous quoting rent of £14.50 per sq ft (NIA) down to £12.94 per sq ft (IPMS), which Markland says is unlikely, an unsuspecting tenant will end up paying £3,000 a year more rent for the same amount of net internal area.


The standard aims to create a uniform method for measuring property and is set to replace dozens of existing standards in use around the world. The work to create the global measurement standard has been spearheaded by a coalition of more than 50 professional organisations and has been produced following global consultation by a team of 18 independent industry experts. 


The standard will define which areas are included when measuring a property and which are not. The IPMSC says IPMS for office buildings will lead to “increased transparency and consistency across real estate markets that will benefit the way property assets are managed and, ultimately, how financial decisions are made by investors, corporate occupiers, buyers and sellers”. 


These inconsistencies have led to confusion in markets, and even businesses developing their own costly processes for measuring and benchmarking property assets. Investors too, including pension funds, have had to factor in variation in quoted property size when making decisions about acquiring property.

 

In 2014, John Duckworth, head of occupier services at JLL, said: “We believe that IPMS for office buildings will help corporates better manage and benchmark their property assets across multinational portfolios and, in turn, allow them to make better financial and business decisions. Implementation of these standards will be gradual, but we hope that over time global corporate occupiers will be able to adopt these codes of measurement and use them to their advantage.” 


In FM World’s Think Tank poll conducted in December 2014, most respondents – 46 per cent – thought the standard would be just another bureaucratic gimmick that would make little difference. 


A free copy of Markland’s full report entitled Business Face £1 Billion Bill For Office Space They Cannot Use can be requested from Tenant Advisory Group by emailing ipms3@tenantag.co.uk, quoting ‘Report’ in the subject line.