Expenditure on operation and maintenance service and rental income of commercial buildings

Abstract

Purpose

The recession in the late 1990s in Hong Kong has triggered many commercial building owners to cut operation and maintenance (O&M) cost via outsourcing. The purpose of this paper is to investigate the dominant expenditure on O&M service and examine the relation between extent of outsourcing and rental income of the buildings.

Design/methodology/approach

Experienced O&M practitioners were interviewed to collect both quantitative and qualitative data of the commercial buildings they looked after. The in‐house and outsourced O&M costs, air‐conditioning energy costs, rental incomes, and management and air‐conditioning fees for the buildings were analysed.

Findings

The total air‐conditioning O&M cost is the principal cost item, with the energy cost being the dominant element. The analysis reveals that the extent of outsourcing bore little correlation with the air‐conditioning O&M cost and the rental income.

Research limitations/implications

Further work may take a similar approach to identify the extent and effect of outsourcing other kinds of services that underpin the core business of an organisation.

Practical implications

Varying the extent of outsourcing O&M service was found to be unpromising for enhancing rental performance or cutting O&M expenditure. This is an important point that the building managers should address when considering whether to go for outsourcing.

Originality/value

The findings imply that in the building O&M service industry, it would be more economical to outsource or undertake in‐house the vast majority of O&M work. The focus for cost minimization should be to improve building energy performance rather than reducing labour resources through outsourcing.

Citation

Lai, J., Yik, F. and Jones, P. (2008), "Expenditure on operation and maintenance service and rental income of commercial buildings", Facilities, Vol. 26 No. 5/6, pp. 242-265. https://doi.org/10.1108/02632770810865014