Retail. OSCAR 2015 Service charge analysis for shopping centres

Retail OSCAR 2015 Service charge analysis for shopping centres

Foreword Our industry has been through some particularly difficult times of late and whilst significant challenges remain in certain areas, the key economic indicators of consumer confidence, retail sales, earnings growth and the economy all point to positive outlook for the sector. But this optimism does not negate the need for reliable and accurate data on service charge costs, which remain a key shopping centre metric for both owners and occupiers, whatever the market conditions. As occupiers expect it, it is essential for owners and managing agents to provide the highest quality service at the most efficient cost. That is why Standard Life Investments welcomes the benchmark information provided by JLL s Retail OSCAR, informing the industry with comparative service charge cost information for a range of centre types across the entire country. Ed Jenkins Head of UK Retail Standard Life Investments On behalf of JLL, I would like to pass on their thanks to BDO for the considerable analysis they have provided in respect of this year s data. I would also like to thank the other contributors who have provided data for this year s publication. I hope you enjoy reading Retail OSCAR and derive value from the output. 2 Retail OSCAR 2015 Service charge analysis for shopping centres

Contents Introduction 4 Executive summary 5 The database 6 Average service charge 7 Average component costs by percentage 11 Service charge by centre size 13 Data contributors include Landlords Standard Life Investments, Aviva Investors, Meyer Bergman, Legal & General, British Land, Intu, Land Securities, Hammerson, New River Retail, Ellandi, The Mall, LaSalle, Aberdeen Asset Management, UBS, USS, TIAA Henderson, Orchard Street, Ropemaker Properties, Schroders Service charge by type and location 14 Definition of terms 17 Geographical areas 18 Agents Workman, Broadgate Estates, Munroe K, Cushman & Wakefield, Capita 3

Introduction JLL s Retail OSCAR report continues to serve as the largest survey of shopping centre service charge information in the UK. The significant, representative sample of shopping centres which contribute to this report allows the reader to examine costs across type, size and location under each of the RICS Code of Practice for Service Charges in commercial property 3rd edition recommended cost class and cost categories. The data used in the Retail OSCAR relates to the service charge expenditure of shopping centres only. For consistency, all costs relating to any non-retail units such as office accommodation or residential are excluded from this analysis. The data in this report covers the costs associated with shared services and maintenance of the common parts of the shopping centre. Costs borne by the occupier in relation to their own demised premises are not included. The data used in the 2015 Retail OSCAR is taken from the audited or certified service charge accounts completed during the 2014 calendar year. All figures are analysed net of VAT. The definition of terms on page 17 defines the principal cost categories referred to in the report. As with all costs within the retail sector, service charges are under almost continuous scrutiny to ensure value for money. Landlords and managing agents continue to examine these operational costs to try to achieve efficiencies where possible without compromising the levels of service required for a given centre. Retail OSCAR continues to report service charge expenditure on predominantly a per square foot basis, as this is the UK industry norm. However, to illustrate figures on a per square metre basis our results need to be multiplied by the conversion factor of 0.09290304. This report excludes Insurance costs and overall service charge levels exclude Income and Exceptional Expenditure so as to maintain a like for like approach. Details of Income and Exceptional Expenditure can however been seen in some of the data. 4 Retail OSCAR 2015 Service charge analysis for shopping centres

Executive summary Each shopping centre is unique. It is therefore important to consider that factors such as age, construction and the levels of mechanical and electrical equipment, common area space and specification will vary considerably when comparing Retail OSCAR with individual properties. Core Centres The average service charge (excluding income and exceptional expenditure) is: Enclosed A/C 5.79 per sq ft (2014 5.92, a decrease of 2.22%) The Retail OSCAR dataset this year contains 240 shopping centres in total, covering over 72.5 million square feet. Data for 146 of these properties was present in the 2014 report: For the 240 All Centres dataset, costs are analysed and reported by type of centre (enclosed, part enclosed or open and whether air-conditioned). Enclosed Non-A/C Part Enclosed A/C Part Enclosed Non-A/C Open 4.86 per sq ft (2014 5.07, a decrease of 4.22%) 4.59 per sq ft (2014 4.27, an increase of 7.52%) 3.48 per sq ft (2014 3.93, a decrease of 11.25%) 3.26 per sq ft (2014 2.77, an increase of 17.37%) For the 146 Core Centres dataset, whose costs are comparable year-on-year, costs are analysed and shown on a comparable basis. Principal findings of the 2015 Retail Oscar: All Centres The average service charge (excluding income and exceptional expenditure) is: Enclosed A/C Enclosed Non-A/C Part Enclosed A/C Part Enclosed Non-A/C Open 5.67 per sq ft 4.73 per sq ft 4.59 per sq ft 3.48 per sq ft 2.96 per sq ft 5

The database All Centres The service charge costs for 240 shopping centres have been analysed this year. These centres comprise in excess of 72.5 million sq ft of retail space, incurring over 342 million of costs. Core Centres These 146 shopping centres comprise over 48.2 million sq ft of retail space; with spend in excess of 232 million. Size Categories Retail OSCAR continues to apply size categories in the following bands: Table 1.1 All Properties Current Enclosed A/C Enclosed Part Open Part Part Open Part Open Total Non-A/C Enclosed A/C Enclosed Non-A/C Small 0 34 0 1 16 51 Medium 18 30 1 3 29 81 Large 24 39 2 7 20 92 Very Large 12 3 0 1 0 16 Total 54 106 3 12 65 240 Table 1.2 Ongoing Enclosed A/C Enclosed Part Open Part Part Open Part Open Total Non-A/C Enclosed A/C Enclosed Non-A/C Small 0 7 0 1 10 18 Medium 9 19 1 3 19 51 Small centres Medium centres Large centres Very Large centres 18,000 sq ft to 99,999 sq ft 100,000 sq ft to 249,999 sq ft 250,000 sq ft to 749,999 sq ft Over 750,000 sq ft Large 14 34 2 7 10 67 Very Large 8 1 0 1 0 10 Total 31 61 3 12 39 146 Further database analyses can be seen in the tables opposite: Table 1.3 All Properties Small Medium Large Very Large Total Region 1 7 14 32 5 58 Region 2 32 40 38 7 117 Region 3 12 27 22 4 65 Total 51 81 92 16 240 Table 1.4 Ongoing Small Medium Large Very Large Total Region 1 2 12 24 3 41 Region 2 11 22 28 4 65 Region 3 5 17 15 3 40 Total 18 51 67 10 146 Table 1.5 Current Year Region 1 London and South East Region 2 South, South West, Midlands, East Anglia and Wales Region 3 North, Scotland and Northern Ireland Total Ongoing Core Centres 41 65 40 146 All Centres 58 117 65 240 6 Retail OSCAR 2015 Service charge analysis for shopping centres

Average service charge All Centres The average service charge for All Centres (excluding income and exceptional expenditure) is: Enclosed A/C 5.67 per sq ft Enclosed Non-A/C 4.73 per sq ft Part Enclosed A/C 4.59 per sq ft Part Enclosed Non-A/C 3.48 per sq ft Use of averages Note that the use of averages creates an anomaly where not all centres incur expenditure under all cost categories eg Exceptional Expenditure. In this example the average cost of Exceptional Expenditure quoted is based only on those centres which incurred Exceptional Expenditure, rather than the average across all centres. As a result, the sum of the individual average costs under different cost categories may differ from the overall average costs. Open 2.96 per sq ft Table 2 analyses the data for All Centres by cost class and type. Table 2 Enclosed Enclosed Part Open Part Open Open A/C Non-A/C Part Enclosed A/C Part Enclosed Non-A/C Fee 0.40 0.40 0.38 0.31 0.27 Site Management 0.85 0.80 0.88 0.57 0.55 Management Total 1.25 1.20 1.26 0.88 0.83 Soft Services - Security 1.06 0.93 0.89 0.74 0.62 Soft Services - Cleaning & Environmental 1.10 0.93 0.97 0.68 0.66 Soft Services - Marketing & Promotions 0.30 0.26 0.35 0.24 0.25 Soft Services Total 2.43 2.00 2.22 1.63 1.43 Utilities 0.56 0.43 0.35 0.24 0.19 Hard Services - M&E 0.54 0.44 0.37 0.28 0.21 Hard Services - Lift & Escalator 0.12 0.11 0.13 0.05 0.07 Hard Services - Suspended Access Equipment 0.02 0.03 0.00 0.00 0.01 Hard Services - Fabric Repairs & Maintenance 0.33 0.36 0.21 0.27 0.22 Hard Services Total 0.99 0.87 0.66 0.59 0.44 Income (0.07) (0.08) 0.01 (0.02) (0.08) Exceptional Expenditure 0.70 0.54 0.28 0.33 0.39 Total 5.67 4.73 4.59 3.48 2.96 Total Exclude Income 5.74 4.80 4.58 3.51 3.02 Total Exclude Exceptional Expenditure 5.16 4.43 4.49 3.32 2.83 7

Core Centres The average service charge for Core Centres (excluding income and exceptional expenditure) is: Enclosed A/C Enclosed Non-A/C Part Enclosed A/C Part Enclosed Non-A/C Open 5.79 per sq ft (2014 5.92, a decrease of 2.22%) 4.86 per sq ft (2014 5.07, a decrease of 4.22%) 4.59 per sq ft (2014 4.27, an increase of 7.52%) 3.48 per sq ft (2014 3.93, a decrease of 11.25%) 3.26 per sq ft (2014 2.77, an increase of 17.37%) Expenditure Category Movements There are a total of 31 Enclosed A/C Centre types with a total expenditure in excess of 95.8m over 16.3m sq ft, ranging from 130,000 sq ft to 1.8m sq ft. Enclosed Non-A/C Centre types is represented by nearly double the Enclosed A/C Centres, 61, with a total expenditure close to 90.2m over 18.5m sq ft ranging from 57,000 sq ft to 1m sq ft. As with last year s report, only 3 Part Enclosed A/C Centres contributed with a total expenditure of over 6m spread over 1.1m sq ft. 12 Part Enclosed Non-A/C Centre types are found in the results with over 15.5m spent over 4.3m sq ft. Open Centre types, all of which have no A/C, 7.8m sq ft ranging from 66,000 sq ft to 568,000 sq ft with a total expenditure of over 25m. Changes since 2013 Tables 3.1-3.7 analyses the data for core centres by cost class and type, and compares the costs to data received in 2014. Management cost class have increased across most centre types with Part Enclosed A/C seeing the largest increase. On average, management stands at 1.12 per sq ft, up from 1.10 per sq ft. Table 3.1 Enclosed Enclosed Percentage Enclosed Enclosed Percentage Part Open Part Open Percentage Part Enclosed Part Enclosed Percentage Open Open Percentage A/C A/C change Non-A/C Non-A/C change Part Enclosed Part Enclosed change Non-A/C Non-A/C change 2014 2013 change 2014 2013 2014 2013 A/C A/C 2014 2013 2014 2013 Fee 0.41 0.44-7.54% 0.38 0.38-0.95% 0.38 0.36 4.58% 0.31 0.31 1.30% 0.29 0.29 1.21% Site Management 0.85 0.80 6.71% 0.85 0.82 0.04 0.88 0.74 19.30% 0.57 0.74-23.25% 0.66 0.62 7.87% Management Total 1.26 1.24 1.63% 1.23 1.20 2.13% 1.26 1.10 14.49% 0.88 1.05-16.01% 0.95 0.89 7.64% 8 Retail OSCAR 2015 Service charge analysis for shopping centres

Soft Services show an average increase of 0.13% with Part Enclose Non-A/C showing the largest reduction (-9.80%) and Open centres with the largest increase of 13.91%. Security cost category has seen an average increase of 1.77% with cleaning and environmental seeing an average increase of 1.66%. Table 3.2 Enclosed Enclosed Percentage Enclosed Enclosed Percentage Part Open Part Open Percentage Part Enclosed Part Enclosed Percentage Open Open Percentage A/C A/C change Non-A/C Non-A/C change Part Enclosed Part Enclosed change Non-A/C Non-A/C change 2014 2013 change 2014 2013 2014 2013 A/C A/C 2014 2013 2014 2013 Soft Services - Security 1.12 1.17-3.87% 0.89 0.94-5.16% 0.89 0.84 6.58% 0.74 0.80-7.15% 0.65 0.55 18.45% Soft Services - Cleaning & Environmental 1.08 1.07 1.36% 0.95 1.02-6.64% 0.97 0.90 8.45% 0.68 0.83-18.31% 0.70 0.56 23.45% Soft Services - Marketing & Promotions 0.27 0.32-15.28% 0.27 0.26 4.14% 0.35 0.36-3.56% 0.24 0.22 8.83% 0.25 0.28-10.48% Soft Services Total 2.44 2.52-3.16% 2.06 2.19-5.91% 2.22 2.10 5.62% 1.63 1.81-9.80% 1.53 1.35 13.91% The cost of Utilities shows a decrease of 0.72% as an average with Part Enclosed Non-A/C showing the largest decrease (-16.34%) and Open showing the largest increase (+24.64%). Table 3.3 Enclosed Enclosed Percentage Enclosed Enclosed Percentage Part Open Part Open Percentage Part Enclosed Part Enclosed Percentage Open Open Percentage A/C A/C change Non-A/C Non-A/C change Part Enclosed Part Enclosed change Non-A/C Non-A/C change 2014 2013 change 2014 2013 2014 2013 A/C A/C 2014 2013 2014 2013 Utilities 0.61 0.63-3.47% 0.41 0.47-12.40% 0.35 0.34 3.96% 0.24 0.28-16.34% 0.20 0.16 24.64% The cost of Hard Services largely sees a decrease with Open centres seeing a large increase of 17.98%. Suspended Access Equipment % s appear large however the actual numbers are relatively small in scale. Table 3.4 Enclosed Enclosed Percentage Enclosed Enclosed Percentage Part Open Part Open Percentage Part Enclosed Part Enclosed Percentage Open Open Percentage A/C A/C change Non-A/C Non-A/C change Part Enclosed Part Enclosed change Non-A/C Non-A/C change 2014 2013 change 2014 2013 2014 2013 A/C A/C 2014 2013 2014 2013 Hard Services - M&E 0.58 0.62-7.21% 0.49 0.53-7.18% 0.37 0.47-22.63% 0.28 0.32-13.57% 0.20 0.12 68.58% Hard Services - Lift & Escalator 0.11 0.12-6.16% 0.09 0.08 8.81% 0.13 0.11 16.28% 0.05 0.06-15.17% 0.06 0.06 12.28% Hard Services - Suspended Access Equipment 0.01 0.01-8.80% 0.02 0.02 51.93% 0.00 0.04-87.69% 0.00 0.01-75.63% 0.01 0.02-53.59% Hard Services - Fabric Repairs & Maintenance 0.26 0.26-1.74% 0.32 0.38-14.80% 0.21 0.16 31.69% 0.27 0.30-9.47% 0.21 0.23-5.31% Hard Services Total 0.95 0.96-0.69% 0.89 0.95-6.62% 0.66 0.69-4.39% 0.59 0.65-9.02% 0.44 0.37 17.98% 9

Income credited to the service charge has increased in Part Enclosed and Open centres, whereas all other type centres have seen significant decreases ranging from -34.66% and -138.77%. Enclosed A/C centres have the largest actual numbers compared to Part Enclosed which show the smallest in rate per sq ft. Table 3.5 Enclosed Enclosed Percentage Enclosed Enclosed Percentage Part Open Part Open Percentage Part Enclosed Part Enclosed Percentage Open Open Percentage A/C A/C change Non-A/C Non-A/C change Part Enclosed Part Enclosed change Non-A/C Non-A/C change 2014 2013 change 2014 2013 2014 2013 A/C A/C 2014 2013 2014 2013 Income (0.06) (0.10) -34.66% (0.08) (0.09) -8.54% 0.01 (0.02) -138.77% (0.02) (0.02) 24.55% (0.04) (0.02) 157.87% Exceptional Expenditure is largely dependent on factors affecting each centre. These include the age of the property, the depreciation of plant and the overall specification at a given site. As such, this category cannot readily provide correlations which apply to all centres. Table 3.6 Enclosed Enclosed Percentage Enclosed Enclosed Percentage Part Open Part Open Percentage Part Enclosed Part Enclosed Percentage Open Open Percentage A/C A/C change Non-A/C Non-A/C change Part Enclosed Part Enclosed change Non-A/C Non-A/C change 2014 2013 change 2014 2013 2014 2013 A/C A/C 2014 2013 2014 2013 Exceptional Expenditure 0.71 0.76-6.39% 0.49 0.54-9.55% 0.28 0.14 106.67% 0.33 0.21 59.82% 0.40 0.08 437.03% Overall Costs by centre type There isn t a common trend in the data when reviewed as a whole. Interestingly, however, with Part Enclosed Non-AC centres decreasing and Open centres seeing an increase, 2014 data shows only a 6.75% difference in expenditure between the two centre types. Comparing this with 2013, a Part Enclosed Non-AC was 41.88% higher than Open. Table 3.7 Enclosed Enclosed Percentage Enclosed Enclosed Percentage Part Open Part Open Percentage Part Enclosed Part Enclosed Percentage Open Open Percentage A/C A/C change Non-A/C Non-A/C change Part Enclosed Part Enclosed change Non-A/C Non-A/C change 2014 2013 change 2014 2013 2014 2013 A/C A/C 2014 2013 2014 2013 Total 5.79 5.92-2.22% 4.86 5.07-4.22% 4.59 4.27 7.52% 3.48 3.93-11.25% 3.26 2.77 17.37% Total Exclude Income 5.85 6.00-2.44% 4.93 5.22-5.62% 4.58 4.27 7.23% 3.51 3.94-10.98% 3.29 2.78 18.23% Total Exclude Exceptional Expenditure 5.20 5.27-1.39% 4.52 4.76-4.87% 4.49 4.22 6.46% 3.32 3.78-12.15% 3.09 2.75 12.33% Enclosed Air-Conditioned centres are often more complex and contain additional services not seen in the other centre types. Understandably, this category carries the highest per sq ft cost overall at 5.20. Year-on-year the centres saw a -1.39% decrease. Part Enclosed Non-A/C centres saw a significant decrease of 12.15%, with a total per sq ft cost of 3.32, bringing centres within this category closer to Open centres ( 3.09 per sq ft). Average running costs for Enclosed Non-Air-Conditioned centres have also decreased overall by 4.87% to 4.52 per sq ft. Average costs for Part Enclosed A/C centres have significantly increased by 6.46% to 4.49 per sq ft. (please refer to Category limitation note opposite). Category limitation It should be noted that this year, only three centres are considered Part-Enclosed and Air-Conditioned within the core dataset. This should be borne in mind when comparing average cost and changes within this specific category, as the changes shown may not be as representative as data within a larger set of examples. 10 Retail OSCAR 2015 Service charge analysis for shopping centres

Average component costs by percentage Table 4.1 Enclosed Enclosed Enclosed Enclosed Part Open Part Open Part Open Part Open Open Open A/C A/C Non-A/C Non-A/C Part Enclosed Part Enclosed Part Enclosed Part Enclosed 2014 2013 2014 2013 2014 2013 A/C A/C Non-A/C Non-A/C 2014 2013 2014 2013 Fee 7.06% 7.46% 7.80% 7.54% 8.20% 8.43% 8.99% 7.88% 8.90% 10.32% Site Management 14.71% 13.48% 17.43% 16.12% 19.28% 17.38% 16.28% 18.82% 20.43% 21.66% Management Total 21.77% 20.94% 25.23% 23.66% 27.48% 25.81% 25.27% 26.70% 29.33% 31.98% Soft Services - Security 19.37% 19.70% 18.00% 18.48% 19.46% 19.64% 21.20% 20.26% 18.84% 18.67% Soft Services - Cleaning & Environmental 18.72% 18.06% 19.54% 20.05% 21.24% 21.06% 19.39% 21.06% 21.39% 20.34% Soft Services - Marketing & Promotions 3.96% 4.70% 4.93% 4.70% 7.65% 8.53% 6.29% 4.80% 6.88% 9.54% Soft Services Total 42.06% 42.47% 42.47% 43.23% 48.36% 49.23% 46.87% 46.12% 47.12% 48.55% Utilities 10.46% 10.60% 8.50% 9.29% 7.59% 7.85% 6.81% 7.22% 6.00% 5.51% Hard Services - M&E 9.98% 10.51% 10.11% 10.43% 8.01% 11.13% 8.03% 8.25% 5.81% 4.05% Hard Services - Lift & Escalator 1.89% 1.76% 1.57% 1.38% 1.84% 0.85% 1.18% 1.18% 1.25% 1.20% Hard Services - Suspended Access Equipment 0.06% 0.05% 0.07% 0.08% 0.06% 0.55% 0.01% 0.07% 0.03% 0.03% Hard Services - Fabric Repairs & Maintenance 4.49% 3.85% 6.59% 6.92% 4.50% 3.67% 7.73% 7.04% 6.41% 8.15% Hard Services Total 16.43% 16.17% 18.34% 18.81% 14.41% 16.20% 16.95% 16.54% 13.50% 13.43% Income -1.04% -1.26% -1.44% -1.26% 0.11% -0.16% -0.62% -0.32% -1.04% -0.30% Exceptional Expenditure 10.32% 11.08% 6.90% 6.27% 2.04% 1.06% 4.72% 3.74% 5.09% 0.83% Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Management expenditure which includes management fees and site management resources accounts, on average across all centre types, is 25.82% which sees no variance from last year. Utilities see a decrease on last year in all centre types except for Open centres which is unsurprising when Open centres have less ability to reduce costs by introducing sustainability initiatives. Average across all centre types is 7.87% down from 8.09%. Soft Services, representing the most labour intensive cost categories, remains by far the most significant service charge component by percentage at almost half the total expenditure, with an average of 45.38% which is a slight decrease year-on-year from 45.92%. This amount comprises: Security (19.38% from 19.35%) Cleaning & Environmental (20.06% - 20.11%) Marketing & Promotions (5.94% - 6.45%) Hard Services, which includes M&E and Fabric Repairs & Maintenance, accounts on average for 15.93% of total costs with M&E being 8.39% on average across all centre types. 11

Table 4.2 Small Small Medium Medium Large Large Very Large Very Large 2014 2013 2014 2013 2014 2013 2014 2013 Fee 11.20% 10.07% 7.81% 8.58% 7.64% 7.52% 6.63% 6.54% Site Management 20.10% 22.60% 18.27% 17.61% 16.53% 15.76% 13.93% 11.80% Management Total 31.31% 32.67% 26.08% 26.19% 24.16% 23.28% 20.56% 18.34% Soft Services - Security 21.06% 18.11% 18.90% 19.50% 18.66% 19.07% 16.77% 17.39% Soft Services - Cleaning & Environmental 20.05% 20.48% 19.34% 19.33% 20.20% 20.23% 18.41% 17.81% Soft Services - Marketing & Promotions 6.46% 5.94% 5.70% 6.80% 4.91% 5.21% 3.29% 2.82% Soft Services Total 47.56% 44.54% 43.94% 45.64% 43.76% 44.51% 38.46% 38.02% Utilities 6.17% 5.68% 7.74% 8.20% 9.17% 9.69% 9.53% 9.65% Hard Services - M&E 5.37% 4.76% 7.30% 7.20% 10.60% 10.62% 12.04% 12.92% Hard Services - Lift & Escalator 0.65% 1.07% 1.67% 1.67% 1.65% 1.42% 1.64% 0.91% Hard Services - Suspended Access Equipment 0.16% 0.00% 0.09% 0.08% 0.02% 0.08% 0.03% 0.06% Hard Services - Fabric Repairs & Maintenance 7.33% 9.73% 6.64% 7.94% 5.89% 4.93% 2.80% 4.00% Hard Services Total 13.51% 15.57% 15.70% 16.89% 18.15% 17.05% 16.51% 17.89% Income -0.85% -0.55% -1.49% -1.92% -0.99% -0.53% -1.01% -0.24% Exceptional Expenditure 2.31% 2.09% 8.02% 5.00% 5.74% 6.01% 15.94% 16.33% Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Within the Very Large centre category, management cost class saw an increase from 18.34% to 20.56% with site management resources being the main factor (increase from 11.80% to 13.93%). Hard Services on average across all centre sizes represent 15.97% of total costs, a decrease from 16.85%. Out of this, the average cost of M&E is 8.83%, a marginal decrease from 8.87%. Utilities Medium, Large and Very Large centres saw a decrease which may show the push towards more sustainable initiatives however Small centres showed the only increase from 5.68% to 6.17%. Soft Services on average across all centres are 43.43% of total costs, a slight increase from 43.18% on the same 146 centres 2013 data. As an average, Security and Cleaning & Environmental cost categories represent a total of 38.34% of total service charge budget costs. Marketing & Promotions costs are difficult to analyse in full as there are occasions in which landlords are not contributing 50%, as per the RICS Code recommendation and otherwise where the landlord contribute more than 50%. 12 Retail OSCAR 2015 Service charge analysis for shopping centres

Service charge by centre size It is clear in the data that there are no demonstrable economies of scale to be observed within larger centres, and in some cases the reverse is true. This may be driven by the complexity and specification of services within larger schemes. Small centres 2.81 per sq ft (2014 3.04) a decrease of 7.48% Medium centres 4.49 per sq ft (2014 4.27) an increase of 5.11% Large centres 4.21 per sq ft (2014 4.36) a decrease of 3.51% Very Large centres 4.94 per sq ft (2014 4.79) an increase of 3.14% Average costs and proportionality by centre size are shown here and in the following tables. Table 5 Small Small Percentage Medium Medium Percentage Large Large Percentage Very Large Very Large Percentage 2014 2013 change 2014 2013 change 2014 2013 change 2014 2013 change Fee 0.32 0.31 3.14% 0.38 0.39-1.20% 0.34 0.35-2.31% 0.39 0.37 3.94% Site Management 0.58 0.70-17.51% 0.89 0.81 10.52% 0.74 0.73 0.91% 0.82 0.68 21.23% Management Total 0.90 1.01-11.14% 1.27 1.18 8.11% 1.08 1.08-0.13% 1.21 1.05 15.06% Soft Services - Security 0.61 0.56 7.79% 0.96 0.91 5.35% 0.85 0.89-4.43% 0.99 1.00-1.04% Soft Services - Cleaning & Environmental 0.58 0.64-9.23% 0.94 0.87 8.61% 0.90 0.94-3.93% 1.08 1.02 6.11% Soft Services - Marketing & Promotions 0.19 0.18 0.78% 0.30 0.32-4.96% 0.25 0.26-5.08% 0.39 0.32 20.01% Soft Services Total 1.37 1.38-0.97% 2.14 2.05 4.53% 1.95 2.07-5.40% 2.26 2.18 3.87% Utilities 0.18 0.18 0.62% 0.38 0.37 2.48% 0.41 0.46-10.29% 0.56 0.55 1.36% Hard Services - M&E 0.16 0.16 4.09% 0.36 0.33 10.15% 0.47 0.49-3.95% 0.71 0.74-4.29% Hard Services - Lift & Escalator 0.04 0.06-33.03% 0.10 0.09 7.37% 0.08 0.08 4.99% 0.10 0.09 10.85% Hard Services - Suspended Access Equipment 0.03 - - 0.02 0.02-31.16% 0.01 0.01-47.88% 0.01 0.01-57.63% Hard Services - Fabric Repairs & Maintenance 0.21 0.30-30.16% 0.33 0.36-7.38% 0.26 0.25 6.09% 0.16 0.33-49.56% Hard Services Total 0.39 0.48-19.54% 0.77 0.76 0.93% 0.81 0.79 2.47% 0.97 1.02-5.23% Income (0.03) (0.02) 40.76% (0.08) (0.14) -39.23% (0.05) (0.03) 41.94% (0.06) (0.02) 164.21% Exceptional Expenditure 0.30 0.16 89.94% 0.62 0.52 20.44% 0.37 0.41-11.23% 1.17 1.04 12.77% Total 2.88 3.10-7.27% 4.88 4.49 8.56% 4.47 4.64-3.78% 5.88 5.73 2.67% Total Exclude Income 2.90 3.12-6.99% 4.95 4.67 6.06% 4.51 4.67-3.34% 5.94 5.74 3.46% Total Exclude Exceptional Expenditure 2.81 3.04-7.48% 4.49 4.27 5.11% 4.21 4.36-3.51% 4.94 4.79 3.14% 13

Service charge by type and location Table 6.1 Enclosed A/C Enclosed A/C Enclosed A/C Region 1 Region 2 Region 3 Fee Site Management Management Total Soft Services - Security Soft Services - Cleaning & Environmental Soft Services - Marketing & Promotions Soft Services Total Utilities Hard Services - M&E Hard Services - Lift & Escalator Hard Services - Suspended Access Equipment Hard Services - Fabric Repairs & Maintenance Hard Services Total Income Exceptional Expenditure Total Total Exclude Income Total Exclude Exceptional Expenditure 0.40 0.44 0.36 0.88 0.83 0.85 1.28 1.27 1.22 1.20 1.12 0.97 1.08 1.08 1.09 0.19 0.31 0.32 2.42 2.49 2.33 0.51 0.62 0.76 0.59 0.57 0.58 0.09 0.14 0.10 0.00 0.01 0.02 0.22 0.32 0.19 0.91 1.01 0.88 (0.07) (0.05) (0.09) 0.75 0.67 0.76 5.67 5.92 5.73 5.73 5.96 5.82 5.05 5.35 5.09 Table 6.2 Enclosed Non-A/C Enclosed Non-A/C Enclosed Non-A/C Region 1 Region 2 Region 3 Fee Site Management Management Total Soft Services - Security Soft Services - Cleaning & Environmental Soft Services - Marketing & Promotions Soft Services Total Utilities Hard Services - M&E Hard Services - Lift & Escalator Hard Services - Suspended Access Equipment Hard Services - Fabric Repairs & Maintenance Hard Services Total Income Exceptional Expenditure Total Total Exclude Income Total Exclude Exceptional Expenditure 0.42 0.38 0.35 0.85 0.81 0.87 1.27 1.20 1.22 0.97 0.88 0.85 1.07 0.87 0.94 0.25 0.28 0.27 2.24 1.96 2.03 0.55 0.34 0.39 0.64 0.46 0.42 0.12 0.09 0.07 0.02-0.03 0.30 0.27 0.37 1.05 0.82 0.85 (0.07) (0.09) (0.07) 0.42 0.36 0.64 5.39 4.47 4.83 5.46 4.55 4.90 5.05 4.24 4.42 14 Retail OSCAR 2015 Service charge analysis for shopping centres

Table 6.3 Fee Site Management Management Total Soft Services - Security Soft Services - Cleaning & Environmental Soft Services - Marketing & Promotions Soft Services Total Utilities Hard Services - M&E Hard Services - Lift & Escalator Hard Services - Suspended Access Equipment Hard Services - Fabric Repairs & Maintenance Hard Services Total Income Exceptional Expenditure Total Total Exclude Income Total Exclude Exceptional Expenditure Part Open Part Open Part Open Part Enclosed A/C Part Enclosed A/C Part Enclosed A/C Region 1 Region 2 Region 3 0.38 0.37-0.53 1.06-0.91 1.43-0.82 0.93-0.96 0.98-0.17 0.44-1.94 2.36-0.63 0.21-0.43 0.34-0.12 0.13-0.01 0.00-0.34 0.14-0.90 0.54-0.02 (0.01) - - 0.28-4.40 4.68-4.38 4.68-4.40 4.54 - Note Table 6.3 conveys the data for three centres in total. Region 1 within this table represents one centre, which in the year delivered a credit balance within its marketing expenditure. 15

Table 6.4 Fee Site Management Management Total Soft Services - Security Soft Services - Cleaning & Environmental Soft Services - Marketing & Promotions Soft Services Total Utilities Hard Services - M&E Hard Services - Lift & Escalator Hard Services - Suspended Access Equipment Hard Services - Fabric Repairs & Maintenance Hard Services Total Income Exceptional Expenditure Total Total Exclude Income Total Exclude Exceptional Expenditure Part Open Part Open Part Open Part Encld Non-A/C Part Encld Non-A/C Part Encld Non-A/C Region 1 Region 2 Region 3 0.24 0.28 0.45 0.61 0.51 0.65 0.84 0.79 1.09 0.60 0.81 0.73 0.70 0.66 0.69 0.15 0.32 0.20 1.44 1.74 1.62 0.16 0.27 0.24 0.22 0.32 0.26 0.06 0.06 0.01-0.00-0.27 0.30 0.21 0.55 0.67 0.47 (0.00) (0.03) (0.02) 0.52 0.13-3.52 3.50 3.41 3.52 3.54 3.42 3.00 3.44 3.41 Table 6.5 Fee Site Management Management Total Soft Services - Security Soft Services - Cleaning & Environmental Soft Services - Marketing & Promotions Soft Services Total Utilities Hard Services - M&E Hard Services - Lift & Escalator Hard Services - Suspended Access Equipment Hard Services - Fabric Repairs & Maintenance Hard Services Total Income Exceptional Expenditure Total Total Exclude Income Total Exclude Exceptional Expenditure Open Open Open Region 1 Region 2 Region 3 0.28 0.30 0.25 0.59 0.69 0.68 0.88 1.00 0.93 0.68 0.63 0.65 0.68 0.75 0.51 0.14 0.19 0.72 1.42 1.52 1.76 0.24 0.18 0.16 0.17 0.24 0.11 0.10 0.06 0.03 0.01 0.00-0.28 0.21 0.12 0.50 0.46 0.27 (0.04) (0.05) (0.01) 0.09 0.62 0.16 3.05 3.36 3.19 3.08 3.41 3.20 3.01 3.12 3.11 16 Retail OSCAR 2015 Service charge analysis for shopping centres

Definition of terms Cost categories The Royal Institution of Chartered Surveyors Service Charge Code came into effect on 1st April 2007, with a 3rd Edition of the Code launched in 2014. The Code incorporates 22 cost categories, which have been embraced by the majority of owners and managing agents to bring about greater uniformity in the way that service charges are presented across the industry. The data presented within this year s Retail OSCAR is for the year ending December 2014. We detail below for ease of reference the items included within each category: Management 1. Management Management fees Accounting and audit fees NB this currently incorporates the Accounting Fees cost category as defined within the RICS Service Charge Code 2. Site management resources FM staff/concierge/receptionist costs Site accommodation (rent/service charge/ rates) Office costs (telephones/stationery/petty cash) Help desk/call centre/information centre Landlord s health, safety and environmental risk assessments, audits and reviews NB this currently incorporates the Health, Safety and Environmental cost category as defined within the RICS Service Charge Code Utilities 3. Electricity Electricity Fuel (standby electrical power) Electricity procurement/consultancy 4. Gas Gas and heating fuel oil Gas/fuel oil procurement/consultancy NB this currently incorporates the Fuel Oil (Heating) cost category as defined within the RICS Service Charge Code 5. Water Water and sewerage charges Water consultancy Soft Services 6. Security Security guarding and receptionists Security systems Post room and mail distribution services 7. Cleaning and Environmental Internal/external/window cleaning Hygiene services/toiletries Carpets/mats hire Waste management Pest control Floral displays and landscaping Suspended access equipment, maintenance and repairs NB this currently incorporates the Suspended Access Equipment cost category as defined within the RICS Service Charge Code Hard Services 8. M & E Services M & E maintenance and repairs M & E inspections and consultancy Life safety systems maintenance and repairs Life safety systems inspections and consultancy 9. Lifts and Escalators Lift maintenance and repairs Lift inspections and consultancy Escalator maintenance and repairs Escalator inspections and consultancy 10. Fabric Repairs and Maintenance Internal/external repairs and maintenance Re-decoration Other terms Exceptional Expenditure Project works Refurbishments and major repairs Draw-down from forward funding accounts Sinking/replacement/reserve funds Depreciation/repayment charges Estate/external service charges Base-level Service Charge The full Service Charge costs of running a building excluding exceptional expenditure. This provides a measure of the cost of providing routine operational services to a building. Full Service Charge Costs The full expenditure running through a service charge account, including exceptional expenditure, but excluding any interest receipts and insurance costs. Air-Conditioned A building in which cooling and heating are provided in the majority of the lettable space via the landlord s central plant installation. Non-Air-Conditioned A building in which only the heating is provided in the majority of lettable space via the landlord s central plant installation. Tenant s supplemental air-conditioning plant is disregarded in this context. Retail Oscar size bands Small centres 18,000 sq ft to 99,999 sq ft Medium centres 100,000 sq ft to 249,999 sq ft Large centres 250,000 sq ft to 749,999 sq ft Very Large centres over 750,000 sq ft Roundings Rounding differences may occur due to the values published being displayed to a restrictive number of decimal places. 17

Geographical areas Region 1 London and the South East area within the M25, South of London and east of the M3 motorway. Region 2 South and South West, Wales, Midlands and East Anglia all areas north and west of London and the South East, and south of the North, Scotland and Northern Ireland. Region 3 North, Scotland and Northern Ireland area north of Cheshire, Derbyshire, Nottinghamshire and Lincolnshire. 18 Retail OSCAR 2015 Service charge analysis for shopping centres

JLL Office JLL 40 Bank Street Canary Wharf London E14 5EG BDO Nigel Wheeler Chairman Property & Asset Management +44 (0)203 147 1395 Nigel.Wheeler@eu.jll.com Nick Lees Lead Director UK Property & Asset Management +44 (0)207 087 5020 Nick.Lees@eu.jll.com Jordan Jeffery Head of Retail Management +44 (0)203 147 1469 Jordan.Jeffery@eu.jll.com Richard Dunling Senior Surveyor Retail Management +44 (0)203 147 1302 Richard.Dunling@eu.jll.com Duncan Ashman Partner Global Outsourcing +44 (0)117 930 1507 Duncan.Ashman@bdo.co.uk jll.co.uk COPYRIGHT JLL, IP, INC. 2015. All Rights Reserved. While every effort has been made to ensure accuracy and completeness, we cannot offer any warranty that factual errors may have occurred. JLL cannot accept any legal responsibility for any damage or loss suffered by reason of any inaccuracy or incorrectness concerning information and material in this report.