Social Icons Superfish

Rent Growth Indicates Confidence Growing in Office Sector

08/29/2012 | By Carisa Chappell

In a sign of strength for the office sector, rents rose in major markets across the country in 2011, according to data released in August by the Building Owners and Managers Association (BOMA.)

The BOMA report noted that the current uptick in rental income suggests that building owners are becoming more confident in their earnings potential. Therefore, they are more comfortable with raising rates. That marks a stark change from preceding years, according to Tracy Glink, BOMA's manager of research.

"The real estate market had been hit hard. Since 2008, building owners have been making rents low to retain tenants," Glink said. "It was better for them to have low rent than to have vacancies."

Rental growth was evident even among the least expensive rental markets included in the report, such as Shreveport, La., which has an average rental income of $11.76 per square foot. Shreveport saw its rental income increase by 13.8 percent from 2010 to 2011.

"Commercial real estate is on its way up, which is great news," Glink said.
Glink said she'd be surprised if rents have increased significantly this year, however.

"It's certainly in the realm of possibility, but I'd be very surprised if rents increased significantly because people are still nervous about their expenses as a tenant," she said.

Growing rents and overall income have helped insulate building owners against rising operating expenses, according to BOMA's analysis.

Most Expensive Markets

At $45.15 per square foot, New York still has the most expensive office market in the country, according to BOMA. New York was followed in price by Washington, Boston, San Francisco and San Mateo, Calif.

New York also had the highest operating expenses, averaging $12.46 per square foot per year, followed by San Francisco, Washington, Boston and Los Angeles. Total operating expenses incorporate all expenses incurred to operate an office building per year, including utilities, repair, maintenance, roads and grounds, cleaning, administration and security.

Although operating expenses increased in most major metropolitan markets in the last year, rent-based income growth helped insulate building owners and managers.

BOMA's annual report on rents and operating expenses aggregates performance data from the previous year. It drew from a population of more than 5,400 buildings across 125 markets in 2011.