What are the Highest Cost Factors for Building Operations?

Operation Costs Defined: Operation costs, as stipulated by legal documents like the Law of Housing and Ministry of Construction Circulars, are essential for the seamless functioning of facilities. Adherence to these regulations is paramount, ensuring no disruption to daily operations. During initial phases or prior to the establishment of the Building Owners’ Committee, developers may temporarily accept reduced profits to maintain fees from residents and tenants.

Distinguishing Maintenance from Operating Costs: It’s common for residents and tenants to confuse maintenance charges with operational costs. It’s important to note that these are distinct payments serving different purposes.

Components of Real Estate Project Operation Expenses: The makeup of operation expenses varies based on project type, nature, and usage. Nevertheless, key components include:

1. Operational Personnel Costs:

• Covering departments like reception, technical, and customer service.

• Encompassing salaries, allowances, insurance, training, recruitment fees, and more.

2. Outsourced Service Costs:

• Including public lighting, plant watering, road and public toilet cleaning, tree care, insect control, system inspections, and regulatory insurance.

3. Consumable Costs:

• Encompassing technical replacement and repair expenses, sanitary supplies, chemicals for wastewater treatment, and potential swimming pool maintenance.

4. Energy Costs:

• Pertaining to annual energy consumption (fuel, electricity, thermal energy) in building operations.

• Notably, this category accounts for the largest share of building operational costs, constituting 40-50% according to Pham Huy Tuan, Head of M&E, Property Management, Savills Hanoi.

According to Pham Huy Tuan, Head of M&E, Property Management, Savills Ha Noi, energy costs account for as much as 50% of operating costs in buildings.

Tuan also stated that energy cost optimisation in buildings is essential, however, many developers have not optimised their technical systems, which results in energy and resource waste.

These measures are even more important for projects that are more than ten years old because technical systems deteriorate and consume a lot of electricity if not properly maintained. Analysing energy use and the state of the property and M&E and upgrading infrastructure and technical systems as well as the energy audit reports of the Ministry of Industry and Trade, will optimise energy costs, reduce operating expenses, and enhance the building's quality, meeting future demand. This is also one of the features that developers look for when selecting Savills as a property management consultant.

Our technical system consultancy packages include:

• Design and technical system consultancy (for projects that are in the pre-operational stage)

• Technical assessment and solutions (for operational projects)

Find out more about our Property Management Consultancy services here.

Factors Affecting Energy Costs:

1. Location:

• Direction, climate, weather, and building surroundings impact natural light, temperature, and energy needs.

2. Scale and Peculiarities:

• Area characteristics and architectural features influence energy consumption, efficiency, and system layout.

3. Demand for Use:

• Tenant and resident needs (e.g., air conditioning, heating, lighting) determine energy consumption.

4. Operations of the Management Unit:

• A proficient management unit can significantly contribute to energy optimisation, ultimately reducing operating costs.

Effective Energy Cost Management: To minimise operating costs, consider the following solutions:

1. Evaluate and adjust technical system capacity based on actual requirements.

2. Utilise energy-efficient equipment and sensors in common areas.

3. Enhance heat and sound insulation and implement water and lighting conservation measures.

4. Implement an energy management system.

5. Develop comprehensive maintenance plans.

The detailed content and solutions are based on actual operating experience, as our experts will reveal in the next articles.

Conclusion

Balancing operational costs while ensuring profitability is a critical challenge for developers. Tailored approaches, backed by specialised expertise, are essential. Collaborating with a property management service provider like Savills, with over 25 years of experience, ensures developers gain insights into their building's status and receive optimised operational plans.

Contact Savills Property Management for advice.

Read further: 

• How to calculate and build property management budget?

• How to Optimise Maintenance Funds in Apartment Buildings

• Creating an Efficient Maintenance Plan for Apartment Buildings

• The Vital Role of the Technical Team in Building Operations