Income and Expense Data on Office Building Performance Reported In New Study

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Total collections for suburban office complexes nationwide in 2009 increased a slight 1% from 2008 levels to $19.75 per square foot of net rentable area. Downtown properties experienced a mere 0.2% year-to-year rise to $21.89 per square foot. Total actual collections for downtown properties were 10.8% more last year than their suburban counterparts.

These are among the major findings reported in the 2010 edition of the Income/Expense Analysis®: Office Buildings, a new benchmarking study published by the Institute of Real Estate Management (IREM®). This annual research study, conducted by IREM since 1976, analyzes operating income and costs for 1,980 private-sector office complexes – some containing multiple buildings – in major metropolitan areas and regions in the United States. It is designed to help property owners, managers, investors, appraisers, lenders, developers, and other real estate professionals evaluate a buildings’ performance.

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. 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. The publication may be a helpful resource for those who wish to build better budgets; identify ways to grow and trim expenses; market a property more successfully; prepare feasibility studies, appraisals and loan requests; and much more.

OPERATING COSTS DECLINE SLIGHTLY
Total operating costs for suburban buildings in 2009 decreased 0.5% from the prior year to $8.80 per square foot of rentable area, while operating costs for downtown properties decreased 1.9 percent to $10.09 per square foot.

Nationally, net operating costs for suburban buildings decreased 3.1 percent to $6.20 per square foot of rentable area in 2009 vs. 2008, whereas those for downtown properties decreased 4.9% to $7.13 per square foot.

KEY EXPENSE COMPARISONS
Three of five major expense categories for suburban properties rose last year, with insurance/services experiencing a 6.5% increase, real estate and other taxes rising 6%, and administration/benefits costs rising 1.8%. In contrast, utility costs and janitorial/maintenance services both experienced year-to-year declines of 2.8%.

All but one of the five major expense categories for downtown properties decreased last year from the year prior. The biggest year-to-year decline, 6.6%, was for utilities, followed by janitorial/maintenance services, down 4.4%, administration/benefits costs down 2.4%, and insurance/services down 1.6%. On the upside, real estate and other taxes rose 2%.

Focusing again on major expense categories, but as a percentage of total operating costs, the IREM study reveals that real estate and other taxes along with janitorial/maintenance services accounted for the largest portion of suburban properties’ operating costs, 26.1% and 24%, respectively. Utilities represented 23.3% and insurance/services and administrative/benefits represented 13.1% and 12.6%, respectively.

Similarly, expenditures for janitorial/maintenance services and real estate and other taxes accounted for the largest portion of downtown properties’ operating costs, 25.8% and 25.4%, respectively. Utilities represented 21.2% and insurance/services and administrative/benefits accounted for 12.4% and 12.2%, respectively.

Overall, suburban properties proved 12.8% less costly to operate in 2009 than their downtown counterparts, with all expense categories less than those experienced by downtown buildings.

VACANCY RATES RISE IN BOTH SUBURBAN AND DOWNTOWN BUILDINGS
The national vacancy rate for suburban office properties in operation for 12 months rose 4% in 2009 vs. 2008, while the rate for downtown properties rose 2%. The 2009 vacancy level for suburban properties was 11%; that of downtown properties was 7%.

MEDIAN OPERATING RATIOS
Though downtown properties reported higher total actual collections than suburban properties in 2009, the overall operating experience of both downtown and suburban office markets were similar as reflected by their median operating ratio (total operating costs divided by total actual collections). The median operating ratio at suburban properties was 0.43, while the operating ratio at downtown properties was 0.46.

The 304-page Income/Expense Analysis®: Office Buildings is available for $434.95 (plus $15.50 shipping and applicable state sales tax). The IREM® Member price is $217.95 (plus shipping and handling). To order, call toll-free to (800) 837-0706, ext. 4650 e-mail [email protected].

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