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Falling Rental Income Drives Office Expenses Down

08/29/2013 | By Carisa Chappell

Falling Rental Income Drives Office Expenses Down

A decrease in rental income has contributed to office building owners and managers trying to lower their operating expenses, according to a report released by the Building Owners and Managers Association (BOMA).

The association’s annual report on  operating costs in commercial real estate markets in the United States, released Aug. 27,  showed that there was a 3.9 percent overall decrease in total operating expenses for office buildings from 2011 to 2012. At the same time, the average rental income for office buildings dropped 2.9 percent from 2011 to 2012.

BOMA noted that building owners and managers are compensating for the rental income losses with greater reductions in spending on operating expenses.  Operating expenses incurred include utilities, repairs and maintenance, roads and grounds, cleaning, administration and security. The office sector is also focusing on maximizing building efficiency in the face of dwindling income, according to the report.

New York, which topped the list of the most expensive markets for operating expenses in 2012, saw a decrease of 66 cents per square foot to $11.90 per square foot. The other most expensive markets include San Francisco , Washington, Santa Monica and San Jose.

“Santa Monica and San Jose moved into the top five most expensive markets, replacing Boston and Los Angles from 2012,” said A.J. Rao, vice president with Kingsley Associates, the industry research firm that BOMA collaborates with to create the report. Boston saw a 9 percent decease and Los Angeles saw a 6 percent decrease.

On the other end of the spectrum, the least expensive markets in terms of total operating expenses include Salt Lake City, Atlanta, Phoenix, Cincinnati and Nashville.

The Washington market generates the highest per-square-foot rental income at $44.30. Others in the top five include New York, San Francisco, Santa Monica and San Mateo, Calif.

“The larger markets in the top 5 rental income list are fairly stable, but there is enough economic uncertainty on the horizon that it would not be surprising if they leveled off or even saw some decrease,” said Rao. “Over a longer term, they should all see some growth.”