Rents are rising; ‘densification’
contributes to rising expenses
The latest data from the U.S. office sector shows significant income
growth for a second year in a row, suggesting that the commercial real estate
industry finally has emerged from the
shadow of the Great Recession.
According to BOMA International’s
recently released 2015 Office Experience
Exchange Report (Office EER), rental
income for private-sector office buildings across the country increased 5.3%
from 2013 to 2014, and overall income
(which includes pass-throughs, lease
abatements, etc.) rose 6.2% for these
properties during this same period.
These impressive income gains were
accompanied by increases in total operating expenses and total operating plus
fixed expenses, which climbed 6.1% and
6.6%, respectively. While much of this
increase can be attributed to rising utility
costs – year-over-year utility expenses
more employees in the same space.
A sample of additional top-level U.S.
office sector data from the 2015 Office
EER, the largest and most comprehensive
office sector benchmarking resource in
the industry, can be found below.
PRIVATE-SEC TOR OFFICE BUILDINGS
■ Rental income for office buildings
increased 5.3%, from $27.19 per square
foot (psf) in 2013 to $28.63 psf in 2014.
■ Total income rose 6.2%, from $28.69
psf in 2013 to $30.47 psf in 2014.
■ Base rent for office buildings increased
5.8%, from $21.85 psf in 2013 to $23.12
psf in 2014.
■ Pass-throughs increased 7.3%, from
$5.14 psf in 2013 to $5.51 psf in 2014.
■ Revenue from escalations jumped by
13.9%, from $4.62 psf in 2013 to $5.26
psf in 2014.
BY JOANNE G. ARNOLD
Square Feet Per Worker Continues to Fall
jumped a whopping 7.9% – it also seems
to indicate that property owners and
managers are continuing to move forward
with building improvement projects that
were put on hold during the economic
downturn. Expenses related to building
repairs and maintenance, for example,
increased 6.2% from 2013 to 2014.
The industry-wide trend of office
densification also may be contributing to
the uptick in expenses. Reported square
feet per office worker dropped another
1.5% in private-sector office buildings,
from 293.7 square feet per worker in
2013 to 289.3 square feet per worker in
2014. Increased office worker density
can cause operational expenses to rise
as building systems – from electrical
to HVAC to plumbing – work harder to
accommodate the growing needs of
Total Income Total Oper Exp Total Oper +
OFFICE SECTOR INCOME AND EXPENSE CHANGES