Landmark development

The adoption as mandatory of the new International Property Measurement Standards is a major development, says TONY GRANT.

In February, the new RICS Property Measurement Professional Statement for offices became mandatory for SCSI members, as part of the implementation of the new International Property Measurement Standard (IPMS). This landmark development is good news for corporate occupiers, developers, investors and the global property market as a whole. But what does it really mean and how will it impact the property industry, as the new measurement standard is not just something technical that surveyors need to understand?
The IPMS will have a major impact on the sale and purchase process, and on how investors manage their global portfolios.

Why do we need the IPMS?
You wouldn’t buy a property without carrying out a building survey, so why would you do so without taking a measured survey to understand the size of the property? Property investment is now very much a global business, with property funds having portfolios that are spread across continents. The problem is that many of the leading global markets have their own standards for measuring property and some emerging markets have no set standards at all. This makes it very difficult for asset and fund managers or investors to compare the value of one property with another in their portfolio.
For instance, measurement variations between markets caused by inconsistent measurement standards can be as high as 24%, and only certain elements are measured and included. This can, understandably, lead to a lack of clarity over exactly what is being bought. The introduction of one universal measurement standard brings transparency and consistency to a process that is becoming increasingly global.

This landmark development is good news for corporate occupiers, developers, investors and the global property market as a whole.

What are the benefits of the IPMS?
For global investors, the biggest benefit is the simplifying of data. Investors are able to benchmark their property portfolios to a recognised standard rather than spending time and effort creating bespoke standards, or calibrating and translating reports produced to the previous standards. Importantly, the IPMS is designed to work alongside existing recognised international standards for accountancy (International Financial Reporting Standards – IFRS) and valuation (International Valuation Standards – IVS), making financial reporting more transparent too.

What has changed?
Replacing the traditionally used SCSI Measuring Practice Guidance Notes with the IPMS means that there are now several significant changes to the measurement reports we produce, and which are seen by so many professionals in the property industry. For a start the terminology will change, with gross external area (GEA), gross internal area (GIA) and net internal area (NIA) being replaced by IPMS1, IPMS2 and IPMS3, respectively. As a result of the introduction of measuring to the Internal Dominant Face, the reported area of buildings will change, with the likelihood that, on paper, building sizes will increase. This doesn’t mean a building has grown; it is just that the basis of how the areas within the building have been reported has changed.

Area change versus value
It is going to be important to remember that although reported building areas will change, the IPMS will not directly impact property value because that is established and dictated by local market factors. What it will mean is that because the data that sits alongside a valuation will be consistent across global property markets, this will lead to a more transparent basis for how the valuations of assets in a cross border portfolio relate to each other from one market to the next.
The square foot multiplier may therefore change, but the overall value should not. Realising that the provision of comparable evidence is important in valuations and rent negotiations, the RICS has acknowledged that for a period of time there will need to be an element of ‘dual reporting’, while the industry gets used to the new reporting system and a bank of comparable IPMS evidence is compiled. This will mean being able to provide the area reported as per CoMP alongside the IPMS reported area of the property.
Remember, there is no requirement to review existing leases in light of the release of the IPMS; however, the IPMS should be adopted for new leases.

The start of something special
A lot has been invested in the creation of the IPMS, and it has seen more than 70 international organisations come together to get behind one single, consistent measurement standard, something that you very rarely see in the property industry. It will bring greater confidence to the market and surveyors can stop wasting time calibrating and translating reports that have been produced to different standards.
So far, the IPMS is only applicable to office space, but it will be rolled out to the residential, industrial and retail sectors to create an even greater alliance within the next 12 months.

Understanding the key differences

Gross external area vs. IPMS1 – the exterior extents of the property

  • The only difference between these two is the reporting of covered galleries and balconies, which currently are not included in measurements, but will be in future.

Gross internal area vs. IPMS2 (offices) – the interior extents of the property

  • Perimeter measurements are taken to the ‘Internal Dominant Face’.
  • Covered galleries and balconies are included in the measurement and reported separately.
  •  Areas can also be detailed on a component-by-component basis.

Net internal area vs. IPMS3 (offices) – details areas on an occupancy basis

  • Perimeter measurements are taken to the ‘Internal Dominant Face’.
  • Columns are included within the measurement.
  • Standard building facilities (i.e., corridors, toilets, lifts stairs, etc.) are excluded.
  • There are no inclusions/exclusions like those contained in the CoMP. Limited Use Areas should be used to detail certain areas that are incapable of occupation (e.g., height restriction, or areas occupied by heaters, columns, internal structural walls, etc.).
  • Covered galleries and balconies that are for the exclusive use of one tenant are included.
  • On floors with multiple occupants, the area is taken to the midpoint of the partition wall between tenancies.

The RICS Professional Statement has a good set of diagrams, which help to demonstrate these differences.

Key Differences

Tony Grant

Tony Grant
Partner, Malcolm Hollis LLP.