Top 10 Most And Least Expensive Markets to Operate a Building

Earlier this week, FacilityBlog featured a post on the Whitestone Facility Operations Cost Reference 2011-2012, International Version. This guide analyzes operation cost statistics for 75 building types in over 100 international areas.

In related news, the Building Owners and Managers Association (BOMA) International has released detailed operations data regarding commercial real estate markets in the United States. The data is drawn from the 2011 Experience Exchange Report® (EER), which provides an annual analysis of the office building operating income and expense data compiled across approximately 940 million square feet of commercial office space in more than 6,500 buildings in 278 different markets. The 2011 report is based on operating income and expenses from from 2010.

The most expensive U.S. cities based on total rental income* include:
New York, NY, $48.27 per square foot (psf)
Washington, DC, $42.63 psf
San Mateo, CA, $41.61 psf
Santa Monica, CA, $36.67 psf
San Francisco, CA, $34.86 psf
Boston, MA, $31.15 psf
San Jose, CA, $30.35 psf
Los Angeles, CA, $27.97 psf
West Palm Beach, FL, $27.71 psf
Chicago, IL, $25.20 psf

Amid the economic downturn in real estate markets, few markets demonstrated significant increases in rental income, suggesting that rental rates remain relatively stable. Among the most expensive cities, only New York and San Francisco showed increases in rental income.

Gauging most expensive cities on the basis of total operating and fixed expenses produces a slightly different list:
New York, NY, $21.44 psf
Washington, DC, $16.86 psf
Boston, MA, $15.16 psf
Morristown, NJ, $14.67 psf
San Francisco, CA, $14.43 psf
Miami, FL, $12.87 psf
Santa Monica, CA, $12.84 psf
Plainfield, NJ, $12.83 psf
Chicago, IL and Los Angeles, CA, 12.49 psf
Newark, NJ, $12.46 psf

The least expensive U.S. cities, based on total rental income include:
1. Shreveport, LA, $10.47 per square foot (psf)
2. Nashville, TN, $13.31 psf
3. Tulsa, OK, $13.73 psf
4. Dayton, OH, $13.97 psf
5. Columbus, OH, $13.99 psf
6. Boise, ID, $14.64 psf
7. Omaha, NE, $15.23 psf
8. Harrisburg, PA, $15.45 psf
9. Oklahoma City, OK, $15.78 psf
10. Jacksonville, FL, $15.90 psf

Gauging least expensive cities on the basis of total operating and fixed expenses produces a significantly different list:

1. Fresno, CA, $4.25 psf
2. Jackson, MS, $4.97 psf
3. Baton Rouge, LA, $5.48 psf
4. Virginia Beach, VA, $6.20 psf
5. Everett, WA, $6.36 psf
6. Little Rock, AR, $6.59 psf
7. Oklahoma City, OK, $6.66 psf
8. Salt Lake City, UT, $6.68 psf
9. Raleigh, NC, $7.00 psf
10. Norfolk, VA, $7.20 psf

Total operating expenses includes all expenses incurred to operate office buildings, including utilities, repairs/maintenance, cleaning, administrative, security, and roads and grounds. Fixed expenses include real estate taxes, property taxes, and insurance.

Operating expenses increased in most markets in the last year. Fixed expenses were volatile, which could be attributed in part to rising utility costs as well as rising real estate taxes. While many cash-constrained cities and municipalities are looking to real estate for tax revenue, many property owners are contesting tax assessments because asset values have decreased due to the economic downturn.

*Total rental income includes rental income from office, retail, and other space, which includes storage areas.