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

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.