by Brianna Crandall — August 20, 2014—The Building Owners and Managers Association (BOMA) International, in collaboration with research firm Kingsley Associates, recently released the results of the 2014 Experience Exchange Report (EER), its annual benchmarking study, which showed increases across most income and expense categories for privately owned office buildings.
Rental income increased 7.2%, and overall income increased 7.4% in 2013 compared to 2012. Total operating and total operating plus fixed expenses saw increases of 5.3% and 5.6%, respectively. The upsurge in both income and expenses would indicate post-recession growth across commercial real estate properties, points out BOMA.
According to the report, overall utility expenses rose by 2.4% in 2013, ending a four-year downward trend. Nationwide security costs grew by 5.8% in 2013 compared to 2012, with city centers such as Washington, DC, Chicago and Seattle seeing increases in security payroll costs. Repairs and maintenance jumped 5.9% in 2013 as property professionals began investing in maintenance projects that were put on hold during the recession.
The EER showed increases across most income and expense categories for privately owned office buildings.
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Increases also were seen in office occupancy rates and weekly operating hours, with a decrease in square footage per office worker. These figures are reportedly in line with the industry-wide trend toward densification of office space, and could explain increases in building expenses as more people occupy the same space for longer periods of time.
According to the report, commercial property owners and managers found themselves with larger tax bills as municipal and state governments search for additional sources of income. Overall reported fixed expenses grew from $4.15 per square foot to $4.50 per square foot, an 8.4% increase. Real estate taxes alone grew 10.5%, from $3.63 per square foot in 2012 to $4.01 per square foot in 2013.
“Densification of space is reshaping the commercial real estate landscape,” said BOMA International Chair John G. Oliver, BOMA Fellow, managing principal for Oliver & Company. “Increases in both income and expenses in this year’s EER indicate both strong industry growth, as well as an adjustment to a denser office environment.”
Private Sector Office Building Income Trends
- Rental income for office buildings rose 7.2%, from $25.53 per square foot (psf) in 2012 to $27.38 psf in 2013.
- Total income rose 7.4%, from $26.99 psf in 2012 to $28.99 psf in 2013.
- Base rent for office buildings rose 6.4%, from $21.24 psf in 2012 to $22.60 psf in 2013.
- Pass-throughs rose 3.2%, from $4.11 psf in 2012 to $4.24 psf in 2013.
- Revenue from escalations rose 13.2%, from $4.18 psf in 2012 to $4.73 psf in 2013.
Private Sector Office Building Expense Trends
- Total operating expenses rose 5.3%, from $7.72 psf in 2012 to $8.13 psf in 2013.
- Total operating + fixed expenses rose 5.6%, from $11.75 psf in 2012 to $12.41 psf in 2013.
- Cleaning costs rose 5.8%, from $1.37 psf in 2012 to $1.45 psf in 2013.
- Repairs and maintenance expenses rose 5.9%, from $1.87 psf in 2012 to $1.98 psf in 2013.
- Utility expenses rose 2.4%, from $2.10 psf in 2012 to $2.15 psf in 2013.
- Roads and grounds expenses rose 16.7%, from $0.18 psf in 2012 to $0.21 psf in 2013.
- Security expenses rose 5.8%, from $0.69 psf in 2012 to $0.73 psf in 2013.
- Administrative expenses rose 4.8%, from $1.46 psf in 2012 to $1.53 psf in 2013.
- Fixed expenses rose 8.4%, from $4.15 psf in 2012 to $4.50 psf in 2013.
The upsurge in both income and expenses would indicate post-recession growth across commercial real estate properties, says BOMA.
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Private Sector Office Building Occupancy Trends
- Occupancy rates increased 0.5%, from 88.8% in 2012 to 89.2% in 2013.
- Reported weekly operating hours increased by 8.6%, from 62.3 hours in 2012 to 67.6 hours in 2013.
- Reported square feet per office worker saw a 4.5% decrease, from 317.7 square feet per worker in 2012 to 303.4 square feet per worker in 2013.
Now in its 94th year, the EER consists entirely of voluntarily reported data from commercial property owners and managers throughout the USA and Canada. The report allows users to generate customized reports online using a host of search filters, including building size, type, class, location market, submarket and more, and calculates results in real time. For more information or to subscribe to the 2014 EER, visit the BOMA Experience Exchange Report Web site.
