A coalition of 56 organisations – including the RICS – came together in 2014 to produce the first iteration of the International Property Measurement Standards (IPMS) for office buildings. Their goal was to produce a globally recognised method of quantifying space, providing a metric that is comparable across borders and markets – and ultimately to replace other measurement standards such as Net Internal Area (NIA) or Gross Internal Area (GIA) entirely.
Since then, the coalition has expanded to 88 property organisations and it published the latest iteration of the IPMS guidance in January 2023. This latest version is applicable across all buildings rather than being sector specific, hence providing a greater degree of meaningful comparisons to be made across borders and commercial property types.
While use of IPMS has increased over its ten-year existence, it has certainly not superseded the more traditional NIA measurement used for most office buildings when calculating rental values per sq ft. In fact, in most UK markets, NIA remains the benchmark standard – as evidenced by the VOA applying NIA measurements for rateable value calculations. However, there is growing evidence that IPMS is being employed in a growing number of office leasing transactions across the UK.
Part of the rise in popularity is driven from its intended benefits, providing landlords, tenants, investors, insurers, agents and anyone involved in the property industry with a standardised, comparable method of measurement. But there is also a significant nuance in how IMPS is calculated versus the more typical NIA measurement.
The IPMS methodology includes areas that would be excluded from other measurement standards (namely NIA measurements), such as columns, the occupant’s share of a party wall, areas with under 1.5m of height and external areas. While the inclusion of these spaces is dependent on the IPMS grouping (1, 2, 3.1, 3.2, 4.1 or 4.2) employed, the general outcome is a higher floor area for a given space versus an NIA measurement – bringing with it implications for rental calculations.
As an illustrative example, take an office property with a headline rental value of £300,000 and an NIA of 10,000 sq ft. This means that the rent per sq ft (psf) as it is usually provided would be £30.00 psf. However, if the same property was found to have an IPMS floor area of 10,500 sq ft and the rent per annum was held constant, the rent could then be presented as £28.57 psf. Alternatively, if the rent psf was held constant at £30.00 psf, the annual rent for the property under the IPMS area would increase to £315,000 per annum. While each building will vary in the proportion to which the IPMS and NIA differ, the IPMS will invariably come out as a higher measurement.
There is no real incentive for those holding the space to mark their rents down to maintain the overall rate when shifting from NIA to IPMS, and hence they will most often choose to take the extra income. Evidence from across the UK office market supports this, showing that the inevitably higher annual rents are in fact being levied by landlords under the IPMS regime.
This presents a potential windfall for savvy landlords who may look to capitalise on a higher lettable area measurement, while tenants are advised to ensure they understand the area they are being charged for. In both instances, expert advice and advocacy is vital to ensuring the optimal lease is agreed.
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