Benchmark data identifies top five most, least expensive U.S. commercial real estate markets

by Brianna Crandall — August 27, 2012—The Building Owners and Managers Association (BOMA) International, using the results from the 2012 Experience Exchange Report (EER), has compiled a list of the most and least expensive commercial real estate (CRE) city-markets in the United States in terms of total operating expenses and total rental income.

The annual EER report data serves as a useful benchmarking tool for the CRE industry, allowing users to conduct multi-year analysis of single markets and special-use facilities such as medical office buildings, corporate facilities, financial buildings, agency-managed properties and all-electric buildings. The EER aggregates rental income and operating expense figures from the previous year; in 2011, data was gathered from more than 5,400 buildings across 125 distinct markets.

The five most expensive city-markets—Total operating expenses:

  1. New York, NY: $12.46 per square foot (psf)
  2. San Francisco, CA: $10.39 psf
  3. Washington, DC: $10.18 psf
  4. Boston, MA: $9.21 psf
  5. Los Angeles, CA: $8.96 psf

The five least expensive city-markets—Total operating expenses:

  1. Jackson, MS: $4.71 per square foot (psf)
  2. Fresno, CA: $4.78 psf
  3. Salt Lake City, UT: $5.01 psf
  4. Virginia Beach, VA: $5.11 psf
  5. Shreveport, LA: $6.17 psf

“Total operating expenses” incorporate all expenses incurred to operate office buildings, including utilities, repairs and maintenance, roads and grounds, cleaning, administration and security. Fixed expenses include real estate taxes, property taxes and insurance. In New York City, average total operating plus fixed expenses were $21.46 per square foot (psf), while they averaged just $4.71 psf in Jackson, Miss. Operating expenses increased in most markets in the last year, but rent-based income and overall income also saw increases, which helped insulate building owners and managers as their profits continue to gradually return.

The five most expensive city-markets—Total rental income:

  1. New York, NY: $45.15 per square foot (psf)
  2. Washington, DC: $44.10 psf
  3. Boston, MA: $35.51 psf
  4. San Francisco, CA: $34.24 psf
  5. San Mateo, CA: $33.80 psf

The five least expensive city-markets—Total rental income:

  1. Shreveport, LA: $11.76 per square foot (psf)
  2. Dayton, OH: $11.79 psf
  3. Harrisburg, PA: $13.41 psf
  4. Saint Louis, MO: $15.35 psf
  5. Nashville, TN: $15.54 psf

“Total rental income” includes rental income from office, retail, and other space, such as storage areas. As the commercial real estate market continues its recovery, most areas are seeing meaningful increases in rental income, suggesting that tenants may begin to see rental rates increase as building owners become more confident in their earning potential, notes BOMA International. In Shreveport, LA, total rental income increased by 13.8 percent from 2010 to 2011, while among the most expensive cities, only San Francisco showed a decrease in rental income.