Made to measure

The International Property Measurement Standards Coalition (IPMSC) has chosen 19 property experts from across the world to make up the Standards Setting Committee to lay down global standards for property measurement methodology. “The Committee has been entrusted with the onerous task of collating the methods that have been used globally in the last few decades, and using them to establish norms based on the best building measurement practices available. Currently a plethora of standards are being used on the market – and these are often to a large extent inconsistent. We will know we have succeeded when the new standards are adopted by the global property sector,” explains Allen Crawford, the vice-president of the Standards Setting Committee. However, is there actually any need to introduce another method of square metre calculation to the Polish commercial property market?

How to do the calculations?
The Building Owners and Managers Association (BOMA) published the first standards for building measurement as early as 1915. Now these have been divided into a number of sub-categories. One is the ANSI/BOMA Z65.1-2010 standard, which is used for office building measurements. To add to this, the European Group of Valuers’ Associations (TEGoVA) introduced its European Valuation Standards 2009, which can be used for all kinds of property valuation. In Poland another method that is commonly used is GIF. This German standard is based on a leasable area calculation. The measurement tool might have an incongruous name, but it has been devised to clearly demarcate the space that should be considered as attributed to the tenant and that which is shared space. In addition to this the Polish Norm (PN), which has been approved by the Polish Committee for Standardisation, can also be used on the Polish market.

The multiplication of entities
Considering that there are already so many methodologies, is it worth introducing another one? “Both commercial and residential projects require uniform norms for determining the size of their areas under all the definitions that are used on the property market. Clear definitions as well as obligatory norms and rules will make it possible to avoid the disputes and ambiguities that result in additional conflicts when the different kinds of areas are handed over to the property users or owners. Standardising the measurement rules and definitions is extremely important in estimating a property’s value, calculating and settling the operating and commercialisation costs, as well as the selling and purchasing of the properties. The current norms are not consistent in their definitions, which leads to divergences with area measurements, and this results in different opinions over the property’s value and leasing costs, as well as the purchase costs of the buildings and residential units. Every developer and property owner has to settle on the standard by which the size of a building or residential unit is measured in order to enable a tenant or potential client to understand it and – sometimes – question it or request a different measurement method,” says Monika Dębska-Pastakia, a partner and president of the board of Knight Frank in Poland. Indeed, since the market does not follow a single norm, conflicts do arise with landlords. Nevertheless, due to the fact that the new standards that are being prepared are not going to be legally sanctioned, they will also have to be accepted on a voluntary basis, and so it is doubtful that the entire market will adopt them. “It will be very difficult to introduce one universal research method across the world. Taking green certificates as an example, we can see that the market is divided: some use LEED, others BREEAM. Things are similar when it comes to area measurement – the research method chosen depends on the country, the market and its stage of development. The greatest beneficiaries of a uniform methodology would be the banks and institutional investors. They are the ones who care most about property valuation being conducted under a single method across many countries,” argues Paweł Skałba, the head of the office agency at Colliers International.

When do the conflicts arise?
Legal experts Galt have carried out a survey on the most problematic provisions in shopping centre lease contracts. The research was aimed at the identification of those clauses that are the most time-consuming during the negotiation process. Out of the fifteen clauses examined in the survey, the most problematic turned out to be those that cover the consequences of a failure to reach leasing thresholds (as indicated by 71.1 pct of the respondents). The next most controversial type of clause were those related to future redevelopment work on a centre (66 pct). ‘Tolerance clauses’ over the differences between the agreed areas and planned ones came only thirteenth (13.2 pct), while the measurements and measurement criteria (5.66 pct) were a lowly fourteenth on the list of gripes. Clauses for the handing over of the units came last in the ranking, chosen by only 3.78 pct of the respondents. The survey, therefore, reveals that while the problem is by no means marginal, it is not particularly significant either. Disputes between tenants and building owners rarely end up in court. “Tenants have already got used to the fact that the owners of both office buildings and shopping centres are in a position to dictate the methodology used for the measurement of the leasable space for the entire facility. Some calculate the area up to the external walls, others can add the shafts containing lifts and electrical installations – if it is possible to apply this to one tenant. Tenants have substantial concerns when it comes to the measurer’s impartiality. So cheating them hardly increases the opportunities for successful cooperation,” explains Sławomir Lisiecki, a partner of Galt. However, the market view is that it is on the shopping centre market that conflicts mostly arise.

Theory is one thing, practice is another
“Norms are general and do not entail the specific approaches we have encountered on the commercial property market, including the office market,” claims Monika Dębska-Pastakia. “The specificity of the respective fields of developers and owners involves maximising the net leasable area and consequently minimising the common areas, while simultaneously reducing the support and technical areas almost to zero. Because of this, establishing precise measurement standards and definitions would make it possible to avoid differences in opinion on the property area issue,” she adds. Investment funds also use measurement methods they have developed by themselves sometimes – but not always. “When investment funds make individual purchases they try to adjust to the reality of that particular market and are more likely to accept the structure that is used there. When it comes to large property portfolios, however, one method for calculating the area of properties located across a number of countries could help in terms of portfolio valuation. It sometimes happens that new property owners opt for a methodology change. This was the case in the purchase of the Empark complex in Warsaw by Heitman, which measured the area in a different way than its previous owner. However, conflicts didn’t arise from this, only further talks and negotiations,” explains Paweł Skałba of Colliers International. The new property measurement standards should be ready at the beginning of 2014.