by Brianna Crandall — September 15, 2014—Building owners and managers will find valuable information in the latest benchmarking study analyzing income and expenses for office buildings just released by the Institute of Real Estate Management (IREM).
The 2014 edition of the Income/Expense Analysis: Office Buildings research study, conducted annually by IREM since 1976, analyzes operating income and costs for 1,717 private-sector office complexes — some containing multiple buildings — in major metropolitan areas and regions in the United States and Canada. For the fourth consecutive year it also contains financial data, broken out separately, for 358 medical office buildings.
The study is designed to help property owners and managers, investors, appraisers, lenders, developers and other real estate professionals evaluate and optimize a building’s performance. It is an invaluable resource for building better budgets; identifying ways to trim waste, address inefficiencies and make needed improvements; preparing feasibility studies, appraisals and loan requests; and much more, says IREM.
According to the report, total collections for suburban office complexes nationwide in 2013 increased just 0.5% from 2012 levels to $18.72 per square foot of net rentable area. Downtown properties experienced a 3.8% year-to-year collections increase to $21.47 per square foot. Total actual collections for downtown properties were 14.7% greater last year than their suburban counterparts, versus 11.1% higher the prior year.
Operating costs up slightly
Total operating costs for suburban buildings in 2013 increased a mere 0.6% from the prior year to $8.39 per square foot of rentable area, while those for downtown properties rose 2.2% to $10.31 per square foot.
Nationally, net operating costs for suburban buildings last year rose a slight 0.5% to $6.00 per square foot of rentable area, whereas those for downtown properties increased 2.4% to $7.34 per square foot.
Key expense comparisons
Two of the five major expense categories for suburban properties increased, two decreased slightly, and one stayed the same last year. Insurance/services costs rose 8.0%, real estate and other taxes rose 3.3%, janitorial/ maintenance costs declined 1.9%, and utility costs dipped 1.6%. Administrative/benefits costs, at $1.11 per square foot, equaled those of the prior year.
In contrast, all but one of the major expense categories for downtown properties experienced year-to-year increases. Costs for utilities were up 5.9%, those for administrative/benefits rose 5.1%, those for real estate and other taxes increased 4.1%, and those for janitorial/maintenance services rose 3.4%. On the down side, insurance/services costs experienced a decline of 1.5% from the prior year.
In the aggregate, suburban properties proved 18.6% less costly to operate in 2013 than their downtown counterparts, with all expense categories less than those experienced by downtown buildings.
Vacancy rates essentially stable
The national vacancy rate for suburban properties in operation for 12 months was 10% in 2013, equal to that of the prior year. Downtown properties experienced a 7% vacancy rate, down slightly from 8% in 2012.
The IREM Income/Expense Analysis research study contains detailed analyses of office building operating revenues and expenses for major metropolitan areas and suburban markets in the United States and Canada. The income and expense data is presented in dollars per square foot for more than 50 specific categories broken out by building size, height, age, and rental range.
A state-of-the-art product called the Income/Expense Analysis Online Lab is available as a companion product for the research study. The Lab is an interactive Web site with 24/7 access that enables purchasers to download over 10 years of historical office building data — including over 100 customizable line-item variables — and compare it to the operating data in their individual portfolios.
The 320-page Income/Expense Analysis: Office Buildings report is available from IREM’s Income/Expense Analysis Reports Web page in either soft cover or a downloadable format to IREM members and non-members for $242.95 and $484.95, respectively, plus shipping and applicable state sales tax. The page also includes the newly published 2014 editions of four other annual Income/Expense Analysis studies, each of which has a companion Lab: Conventional Apartments; Shopping Centers; Condominiums, Cooperatives and Planned Unit Developments; and Federally Assisted Apartments.
