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Utility costs, consolidation putting pressure on owners bottom line

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Rising utility costs contributed to a 6.1 percent hike in costs.

Increases in income levels are being offset by increased expenses for privately owned office buildings in the United States, according to BOMA.

And continuing trends towards densification also may be counterbalancing gains from a strengthening economy.

In its annual office sector benchmarking study, the Building Owners and Managers Association (BOMA) International, in collaboration with research firm Kingsley Associates, found that for the second straight year, the U.S. office sector has posted significant income growth, suggesting that the commercial real estate industry finally has turned a corner after struggling through the depths of the Great Recession.

According to the 2015 Office EER, rental income for U.S. private-sector office buildings increased 5.3 percent from 2013 to 2014, and overall income for these properties climbed 6.2 percent during this same timeframe.

Accompanying these income gains were increases in total operating expenses and total operating plus fixed expenses, which rose 6.1 percent and 6.6 percent, respectively.

While a considerable portion of this increase can be attributed to rising utility costs — illustrated by year-over-year utility expenses jumping 7.9 percent — the uptick also seems to indicate that buildings owners and managers are moving full steam ahead on maintenance projects and other property improvements that were put on hold during the recent recession.

Repairs and maintenance expenses, for example, increased 6.2 percent from 2013 to 2014.

Another factor potentially contributing to an increase in expenses is the continuing industry-wide trend of office densification.

Reported square feet per office worker dropped another 1.5 percent in private-sector office buildings, from 293.7 square feet per worker in 2013 to 289.3 square feet per worker in 2014.

This rise in office worker density can strain building infrastructure and add operational expenses, as HVAC systems work harder to cool spaces and electricity use increases to power the growing number of computers and other devices.

KENT GIBSON

KENT GIBSON

“The commercial real estate industry has been slow to emerge from the shadow of the recession, but the latest data from BOMA International’s 2015 Office EER shows positive signs of growth for the office sector,” commented BOMA International Chair Kent C. Gibson, BOMA Fellow, president of Capstone Property Management, L.C.

“Property professionals will need to adapt to the realities of increased densification and rising utility costs to keep their buildings — and the industry — thriving.”

Now in its 95th year, the Experience Exchange Report database is the commercial real estate industry’s largest and most comprehensive bechmarking resource.

The Office EER provides critical insights into the performance of the office sector with data from more than 5,300 office buildings in 275 markets across the United States and Canada totaling more than 800 million square feet of space.

This year, BOMA International also announced the launch of the inaugural Industrial Experience Exchange Report (Industrial EER), the only benchmarking resource in the commercial real estate industry specifically tailored to the industrial sector.

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