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Sept. 15, 2015 — Abundant capital and improving occupancy rates have contributed to an environment conducive to rising operating expenses. And, as the data in BOMA International’s recently released 2015 Office Experience Exchange Report (or Office EER) shows, this is exactly what has occurred in the commercial real estate marketplace.
An analysis of a specialized control sample of U.S. private-sector buildings that submitted both 2013 and 2014 data to the Office EER reveals that, while total rental income rose by an average of $1.43 per square foot (psf) in 2014 (an increase of 5.3 percent), total operating expenses outpaced this growth, increasing by an average of 6.1 percent or $0.49 psf.
This overall increase in expenses similarly impacted buildings regardless of whether they were located in downtown or suburban areas, though downtown buildings still tend to cost more to operate — an average of $0.80 psf.
Among the property types included in the Office EER database, operating expenses rose most for general multi-tenant buildings, which reported an average increase of 6.8 percent, or $0.54 psf. Medical office buildings saw a smaller increase of 3.7 percent ($0.30 psf). Corporate facilities were best able to control expenses, reporting an average increase of only 1.1 percent ($0.09 psf).
Utility and repair/maintenance expenses were the two largest operating expense categories in 2014. Average reported utility expenses rose $0.17 psf, an increase of 7.9 percent. Repair and maintenance expenses increased $0.12 psf, or 6.2 percent. Together, these increases account for about 60 percent of the total average increase in operating expenses reported during 2014.
Changes in utility and repair/maintenance expenses were far from uniform. Suburban properties saw a rise in utility expenses that was nearly twice the increase at downtown buildings, while buildings in downtown areas spent $0.53 more in repairs and maintenance than their suburban counterparts.
For more information about BOMA International (Building Owners and Managers Association International), visit boma.org.
