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Johnson Controls Office Occupancy Costs Index, Q4 2000


Introduction: Information at your fingertips

       
Welcome to the 4th Quarter 2000 Johnson Controls USA Office Occupancy Costs Index, which provides a snapshot guide to the cost of providing and operating property and facility management services in the USA.


       
This cost index briefing is published twice a year and has become a powerful and dynamic business reference point for property and facility management professionals.

Why Are These Indices Important?

       
With property and facility management budgets often being squeezed and pressure increasing on managers to demonstrate greater effectiveness and provide more value, understanding how the costs of your operation are changing, and how they compare with others, is vital to identify particular areas of concern. The Johnson Controls USA Office Occupancy Costs Index gives you clear and concise benchmark costs for key property operations and office services activities. This can help as a broad guide and starting point to determine how your organization compares, and where cost levels may be changing through market pressures. We would stress, however, that the unique nature of facilities and individual service requirements means that any comparisons at this level should be undertaken with care.


       
The international nature of business today dictates that it is not enough to merely be concerned with national issues, however, important as they may be. Understanding the cost of providing offices to service local business can be a significant factor in deciding where to base operations. The Johnson Controls International Office Costs Index provides a broad guide to the underlying office occupation costs within the USA, eight key European countries and, for the first time, two countries from the Far East – Japan and Singapore.

The Johnson Controls USA Office Costs Index

[See Tables One, Two, Three and Chart Four for data]

Table One


T

he Johnson Controls USA Office Occupancy Costs Index is based on a detailed model of a medium grade air-conditioned office building, which operates reasonably efficiently with no unusually high service standards or demands. The building is 160,000 rentable square feet in size, and houses 600 occupants working between 8am and 6pm 5 days a week. Figures reported reflect changes from the 2nd Quarter 2000 (end June) to the 4th Quarter 2000 (end December). It does not analyze changes in the cost of rents, local taxes, service charges, insurance, depreciation, small project works, IT and any capital investments/purchases, as variations in the level of these costs are too case specific to monitor in this way. Notional sums for some of these property costs have been added in a separate analysis, however, to give a representation of the total occupancy cost for the model facility.


Table Two       
Costs have been measured in terms of the cost per occupant per year for all services (Table One), and in addition in terms of cost per rentable square feet (Table Two) for those services where a buildings area can be a significant cost driver. The cost per occupant measure is considered to be the more meaningful of the two from a business perspective, as for all services it is that which is most closely aligned to the primary purpose of the facility from the users perspective i.e. the productive support of people. Table Three shows, on a cost per occupant basis, a notional calculation of the total occupancy cost.


       
The Index (Table One) shows that, in overall terms, it now typically costs $2,849 each year to service an office-based employee at a place of work. In terms of the model facility with 600 occupants, this equates to a total annual cost of $1,709,400. Over the 6-month period since the last index this has increased by $33,000. Adding in the property costs gives a total occupancy cost (Table Three) of $9,394 per occupant, which equates to a total annual cost of $5,636,400 for the model facility.


Key Points To Note (Quarter 4 2000)

Table Three   • Maintenance: costs for labor have continued to rise, increasing as in the last period by nearly 2%. The cost of materials has abated this to some extent, decreasing over the six-month period by just over 3/4%.


   • Energy & Water: Electricity costs have reversed previous reductions, and have increased by 3.3% this period. Gas prices, though, have increased by a third. The far greater significance of electricity costs, however, has meant that the energy and water index overall has increased overall by just over 5%.


   • Cleaning: both labor and materials costs have increased by just over 2%.


   • Security: as with cleaning labor costs have risen over the period.


   • External Landscaping: equipment costs have decreased slightly, but labor cost rises outweigh this, giving an overall increase of approximately 11/2%.


   • Internal Moves: labor costs both for operatives and the management function continue to rise, both increasing by just over 2% over the period. This rate of increase is less than last period, where increases were over 3%.


   • Reprographics: equipment costs have once again remained relatively stable, and paper cost increases have decelerated over the period from well over 5% to just over 1%.


   • Mail Room: labour costs have continued to push up, leading to an increase overall of just 1%.


   • Stationery: the rate of increase in paper prices has reduced, costs increasing by just over 1% this period compared to 6% last time.


   • Food Services: labor costs have continued to rise by approximately 2%, but food costs have levelled off, giving an overall increase of just over 1%.


   • Facility Management: labor costs for management have continued to rise at a rate of over 2%, reflecting shortages in skilled and experienced grades.

Chart Four

Trend

       
Chart 4 shows how the Johnson Controls Office Costs Index has represented the changing level of underlying facility costs over the last 4 years. It shows how the rate of increase in office costs has fallen into line with those of producer prices and consumer prices. In particular it is interesting to observe how producer prices have jumped over the last year. This could fuel inflation in facilities costs in the future as the effect of these are passed onto corporate buyers when contracts are renewed. Over the last year, however, it would appear that the industry has found ways to improve productivity so that they are, at least for the most part, absorbed.





Continue to: International Office Costs Index