Background

On 1st January 2016, the RICS Code of Measuring Practice was replaced by the new International Property Measurement Standards (‘IPMS’) in respect of office buildings. Other property sectors (i.e. residential, industrial and retail) will adopt the new standards over the next few years.

IPMS are part of a drive to standardise property measurement systems throughout the world. It is compulsory for all Chartered Surveyors to adopt them, subject to certain exceptions.

So what is the problem?

According to research undertaken by Tenant Advisory Group, IPMS will lead to the majority of UK business tenants paying artificially higher rents for their office space. This is because the new methodology allows landlords to include components that were previously excluded from the quoted floor area. In the UK, office floor areas have traditionally been based on what is termed their 'net internal area' or ‘NIA’. The new rules change this.

The additional new components include;

  • Half the thickness of a party wall between two tenants;
  • The space occupied by structural columns and buttresses; and
  • The space occupied by perimeter heating and/or air conditioning systems

In some properties the new standard will result in the quoted floor area increasing by over 10%.

Looking at the market as a whole, we believe that floor areas could be inflated by an average of 7.5%. This means landlords in the UK could theoretically charge office tenants over £1 Billion more in annual rent.

Our estimate is based on an analysis of the UK’s 95,000 office buildings. To give you some idea of the scale of the financial impact, the total Rateable Value of office accommodation in England & Wales stood at £13.9 Billion on 31 March 2015 (Source: Valuation Office Agency).

Conclusion

If our findings are correct, this new form of space measurement represents a seismic event for the UK office market because it will alter the way rents, service charges and business rates are calculated in the future. It might even affect the way office buildings are designed.

It is therefore vital that tenants and their advisers are aware of the changes otherwise businesses risk paying for space they literally cannot use.

To request a copy of the research please e-mail ipms@tenantag.co.uk.

If you would like the floor area of your office to be checked or need help negotiating lease terms with a landlord who has decided to adopt IPMS, please call a member of the TAG team on 0161 457 1422 or email us info@tenantag.co.uk.