November 28, 2001—Diminishing demand, increasing supply and a glut of surplus space has sent office markets tumbling with little relief in sight. These are the findings of the new 2001 edition of the Income/Expense Analysis: Office Buildings, published by the Institute of Real Estate Management (IREM). The annual research study analyzes the 2000 operating income and cost figures for more than 2,100 private-sector downtown and suburban office buildings in the U.S. and Canada.
During 2000, rental rates for both suburban and downtown office properties increased in most markets. Total operating costs for suburban buildings rose 4.6 percent to $7.21 per square foot while the cost of operating a downtown office building increased 8.2 percent to $8.06 per square foot of net rentable area. Nationally, net operating costs for suburban properties increased to $5.47 per square foot. As a whole, the median net operating costs for a downtown office building increased 3.9 percent to $5.91 per square foot of net rentable area.
Of the key expense categories, administrative/benefits accounted for the largest increases for both suburban (7.6 percent) and downtown (12.6 percent) properties. Similarly, increasing utility costs accounted, in part, for the rise in overall CBD operating costs. The median utility costs for downtown office properties, which accounted for 21.7 percent of the total operating costs, reported an increase to $1.75 per square foot of net rentable area, a 2.9 percent increase from 1999 levels.
Janitorial and maintenance services, at 27.5 percent, consumed the largest portion of total operating costs for the downtown office sector. Real estate and other taxes accounted for 21.6 percent of total expenses, while administration, benefits, insurance and other building services accounted for 10.3 percent of total operating expenses. Nationally, the IREM benchmarking study reported that all regions experienced slight increases in median management fees for downtown office properties, which represent 3.09 percent of total collections.
The Income/Expense Analysis research study breaks down office building financial data into several categories, including property age, size, height and rental range. National and regional reports are included, along with local metropolitan data for many major markets. The 292-page Income/Expense Analysis: Office Buildings sells for $299.95 (plus $11.25 for shipping and applicable state sales tax). To order, contact IREM’s Customer Service Department at 800/837-0706, extension 4650.
