Posted by Heidi Schwartz
According to a study of data from the Building Owners and Managers Association (BOMA) International’s Experience Exchange Report® (EER) by Kingsley Associates, the commercial real estate industry’s ongoing focus on energy efficiency has resulted in a downward trend in total operating expenses. Analysis reveals that properties in the United States reduced total operating expenses from $8.18 to $7.86 per square foot (psf) on average from 2011 to 2012, a difference of $0.32 or 3.9%. About two-thirds of these savings were achieved in the utility category, where average expenses fell $0.21—a whopping 9%—to $2.12 psf, underscoring an industry focus on maximizing building efficiency and smart asset management.
Nearly all building types boasted operating expense savings during 2012. Only corporate facilities saw total operating expenses remain essentially unchanged with a slight 0.5% increase. Downtown buildings remained, on average, more expensive to operate than their suburban counterparts, and they also reported a slightly smaller expense savings (4.1% versus 6.4% for suburban buildings).
As with total operating expenses, the decrease in utility expenses per square foot in 2012 also was broad-based. Private sector office buildings in both downtown and suburban locations observed an identical 9.3% reduction, though costs remain higher at downtown locations. Multi-tenanted buildings were able to achieve greater savings than corporate or single-tenanted facilities (9.6% versus 3.8%), but the trend was the same for both.
However, not all property types saw a decline in this area. Utility costs rose 2.7% at medical office buildings and 4.2% at government-occupied facilities.
In addition to substantial savings on utilities, analysis also revealed that private sector office buildings spent $0.06 (4%) less per square foot on cleaning in 2012. Cleaning and administrative expenses are essentially tied as the third largest expense categories, behind utilities and repairs/maintenance. Building owners and managers were also able to make modest cuts in security and roads/grounds expenses (a $0.03 decrease in each category), though these categories are small relative to others.
These findings are based on an examination of a specialized control sample of more than 2,000 private sector buildings representing 385 million rentable square feet of U.S. office space that submitted both 2011 and 2012 expense data to the EER database. The sample only includes buildings meeting certain criteria in order to control for the impact of major renovations and changes in occupancy on operating expenses to ensure trends captured are representative of market reality.
With detailed income and expense information from more than 5,300 buildings across more than 250 markets, BOMA International’s Experience Exchange Report (EER) allows users to conduct multi-year analysis of single markets and select multiple cities to generate state and regional reports. The 2013 Experience Exchange Report is available at www.bomaeer.com.