The recently released International Property Measurement Standard (IPMS) for office buildings results from an atypical, verging on meteoric, consensus-building process. Despite general agreement that a global asset class needs global standards, efforts to harmonize and assent to universal approaches for calculating, reporting and/or certifying property attributes are often painstaking and time-consuming.
In contrast, the IPMS took about 18 months from conception to completion as a supporting coalition of business and professional organizations from countries worldwide steadily grew. With sponsorship from the Royal Institution of Chartered Surveyors (RICS), the Building Owners and Managers Association (BOMA) International and the Council of European Geodetic Surveyors (CLGE), the nearly 60-member coalition also includes BOMA Canada and the Real Property Association of Canada (REALpac).
“The very speed with which it has come together is an indication of the importance of this kind of standard for measurement,” says John Hughes, the Toronto-based chair of RICS Americas and a RICS Global vice president.
The IPMS coalition endorses universally applied methods for measuring building area so that vendors and prospective purchasers will have the same transparent information in every marketplace — summing up those goals on the IPMS website with the tagline: “Driving consistency; improving confidence in global real estate.” In contrast, the current multiplicity of measurement standards can lead to significant discrepancies.
A Jones Lang LaSalle research survey found that calculated areas for equivalently sized buildings could differ by as much as 24 per cent depending on the measurement approach. Examples of stretching the notion of building area include adding in the dimensions of outdoor swimming pools, off-site parking or extra levels that the foundation could theoretically support.
“Some of the most arcane measurement methods are in New York City,” Hughes notes. “Those standards actually allow for measurement out to the edge of projections from the building, which would be a gargoyle.”
Valuation vs. leasing rationale
IPMS encompasses three defined approaches for measuring gross external area, gross internal area and the floor area exclusively available to occupiers. Of these, practitioners in the field say IPMS 2 — which measures the sum area of each floor on a component-by-component basis — will deliver unique data that’s not included in the ANSI/BOMA measurement standard commonly used in North America as a leasing tool for apportioning costs to tenants. However, for leasing, the BOMA standard will likely still be applied for its gross-up or load factors that establish each tenant’s share of common areas.
“One of the most notable benefits is that IPMS is an agreed upon metric for investors to use in purchasing real estate, which complements the BOMA standard,” says David Fingret, president of Extreme Measures Inc. and BOMA Canada’s IPMS representative. “It’s not really replacing anything. It’s solving a problem with determining areas for valuating properties internationally and also provides a leasing mechanism in those markets without a ubiquitous standard.”
“Investors want to know a lot of different areas that the BOMA standard doesn’t include. It categorizes space in different ways that are sort of unique,” he adds. “For example, IPMS 2 includes balconies, covered galleries and accessible rooftop terraces.”
Beyond the IPMS coalition, which conferred on the development of the standard, more than 100 affiliated partners have signed on with the promise to promote it in their markets. This will be key to a broader rollout since take-up of the standard is voluntary and reliant on market forces and/or institutional peer pressure, including occupants’ expectations or demands. (The emirate of Dubai is the one exception where the government has stated its intent to make IPMS a legal requirement.)
IPMS will have no impact on property values, which largely reflect local market factors, but it may change the quoted floor area and, thus, the calculated price per square foot. While acknowledging that discordant measurement methodologies aren’t intrinsically wrong, particularly within local markets, proponents of IPMS stress the need for a consistent formula that enables wider comparisons.
“Those who are most interested in IPMS are those organizations that operate globally. If you consider very big pension funds — and Canada has some extremely big pension funds — you can recognize how they could benefit from this. If you are reporting on a portfolio of properties that are spread around the globe, you can be confident that it is done consistently,” Hughes says.
“It’s a very laudable objective aligned with what we all hope will happen with accounting and valuation standards,” concurs Michael Brooks, chief executive officer of REALpac, which counts most of Canada’s large institutional real estate investors among its membership. “But I think people are still getting their heads around it.”
Weighing motives for adoption
REALpac, BOMA Canada and RICS Americas are planning a joint seminar later this year to outline the basics and answer questions. Thus far, North American representation lags the many European, Asian, Australasian and Brazilian real estate advisories, developers and academic institutions on the list of IPMS partners, but service providers such as Extreme Measures, Measure Masters or Space Database are on board and could do the measurements if requested now.
The actual procedure will be the same as required for the BOMA standard, although with a few added measurements. The resulting data can then be used for BOMA, IPMS or other measurement standards peculiar to a specific market. Indeed, the IPMS coalition anticipates that, at least initially, many adopters will use IPMS in tandem with the incumbent measurement standard in their own regions.
“This is going to take some time to seed into mainstream practices in Canada,” Brooks says. “If you think about an existing lease with a 10-year term, for example, it’s not likely they’re going to commit to IPMS until the lease ends.”
Similarly, Fingret reports that the current version of the BOMA standard — known as BOMA 2010 — has been fairly widely adopted, but some leases still hearken back to earlier vintages from 1996 or even 1980. For smaller commercial owners, there may be even less incentive to adopt IPMS.
“In its current state, IPMS could not be used for leasing purposes in North America so there is no pressing requirement unless you are thinking of selling your building,” Fingret reflects.
From that perspective, the next planned iteration — IPMS for multi-residential properties — may also be a tougher sell in Canada.
“We do not have many large global players in the apartment space,” reports Lorenzo DiGianfelice, a broker and certified appraiser specializing in the multi-residential rental sector with Commercial Focus Realty Inc. “Those current global apartment players are so few that I think a unitized measuring of buildings will not be relevant at this time. Given the low cap rates we have for apartments right now, I don’t foresee a flood of foreign investment into the Canadian apartment market.”
That said, he suggests other market dynamics could prompt space measurement. Rental buildings haven’t conventionally been analyzed on a price-per-square-foot basis in most Canadian markets except Vancouver, but this is changing as growing numbers of units in multi-residential condominiums become de facto rental stock.
“For higher-end rental buildings, rents are now being viewed on price-per-square-foot per month because that’s how the condo market works,” DiGianfelice says. “As the prices per suite in rental buildings move higher and start to compete with something like 15+-year-old condo product, looking at values on a per-square-foot basis would begin to make sense.”
The IPMS coalition also plans future release of measurement methodologies for industrial and retail buildings.
Barbara Carss is editor-in-chief of Canadian Property Management.
