BOMA: Most, Least Expensive Markets

The Building Owners and Managers Association International has culled numbers from the 2013 Experience Exchange Report to produce a list of the most and least expensive commercial real estate markets in the country. And no, New York City is not at the top.
Tracy Glink, of BOMA

Tracy Glink, of BOMA

The Building Owners and Managers Association International has culled numbers from the 2013 Experience Exchange Report to produce a list of the most and least expensive commercial real estate city-markets in the country. The usual suspects lead the pack.

The 2013 EER provides the numbers for the rankings, offering the specifics on rental income and operating expenses at 5,300 office buildings spanning 250 markets and 115 cities in the U.S. and Canada in 2012. BOMA’s list presents, in a nutshell, the highs and lows of the market. And not surprisingly, it is New York City that, in terms of operating expenses, is out front as the priciest location in the U.S.

Operating expenses for office properties in New York averaged $11.80 per square-foot in 2012. It’s a high figure, but not as high as it was in 2011, when the average reached $12.46 per square-foot. San Francisco and Washington, D.C., held onto second and third place at $9.66 and $9.51 per square-foot, respectively. Fourth- and fifth-placed Santa Monica and San Jose, Calif., with respective average operating expenses of $8.54 and $8.47, knocked former top-fivers Boston and Los Angeles off the list.

The property owners and managers who shell out the least amount of cash on operating expenses can be found out West, down South and in the Midwest, in both primary and secondary markets. Salt Lake City, Utah, was the easiest on the wallet in 2012, with operating expenses averaging just $4.87. The number jumped to $5.57 in Atlanta and hovered in that range for the remaining three cities on the list; expenses averaged out at $5.60 per square-foot in Phoenix, Ariz., and $5.69 per square-foot in Cincinnati, Ohio, and Nashville, Tenn.

There’s been a notable year-over-year change in average operating expenses in the U.S.; there was a drop of 3.9 percent from 2011 to 2012.

“Building owners and managers have made significant strides in decreasing utility expenses over the past several years through a focus on energy efficiency, helping to reduce overall operating expenses,” Tracy Glink, manager of research with BOMA, told Commercial Property Executive. “This trend underscores an industry emphasis on maximizing building efficiency in the face of dwindling income streams.”

For owners who want to pocket top dollar on office rent, New York City is … not the place. The Big Apple was toppled from the top spot by Washington, D.C., in 2012, where properties raked in the highest rental income with an average $44.30 per square-foot. The total rental income in New York City, while not the highest in the land, was none too shabby at $39 per square-foot. Completing the list of the markets with the leading rental income are the California cities of San Mateo, San Francisco and Santa Monica, with respective rents of $34.96, $34.49 and $34.04 per square-foot.

As for the least expensive markets from a total rental income perspective, the Midwest dominates the list, claiming three of the top five spots. The lowest average office rental income among all the markets surveyed is $12.09 per-square-foot, and it can be found in Columbus, Ohio. From there, however, rents take quite a leap, with Tucson, Ariz., claiming the position of the second least expensive market, featuring an average rental income of $13.86 per square-foot. Rounding out the group are Saint Louis, Mo., Cincinnati, Ohio, and Atlanta, with rental incomes of $14.51, $16.35 and $16.89 per square-foot, respectively.

And just as average operating expenses in the U.S. dipped from 2011 to 2012, so did the average rental income. It decreased 2.9 percent, but for the most part, it all balanced out in the end. As BOMA noted in its summary of the findings from the 2013 EER, “Building owners and managers are compensating for these income losses with greater reductions in expenses.”