Building Expense Increases Are Going To Bite
April 13, 2016
Trend for 2016: Rents and Pass-Through Expenses Continue to Rise
- It comes as no surprise, as occupancy rates have recovered to pre-recession levels at years end.
- In addition to demand-driven rent increases, building owners are passing on their increased operating expenses.
Several factors are driving the increase in operating expenses. First of all, the number of square feet per worker has experienced a steady decline for a number of years, resulting in higher worker density. This increasing density causes an increase in expense per square foot. In other words, in a more densely occupied building, the cost of providing utilities and services increases per square foot. Utilities expense rose almost 8% from 2013 to 2014.
Another reason pass-through expenses are on the rise is because of higher occupancy rates. During the lean years when occupancy rates were low, building owners postponed updates and deferred maintenance whenever possible. Now that profits are increasing, landlords are undertaking building improvements and building maintenance project they had previously postponed. Building repairs and maintenance expenses are increasing slightly over 6% annually.
While utilities and repairs and maintenance represent the biggest increase in expenses, every other type of expense has increased, too.
What are the implications for tenants? It’s more important than ever to fully understand the terms of your lease and how these expenses will be allocated. It’s also important to secure capable, professional tenant representation to make sure that you have an experienced negotiator on your side of the table.
If a commercial lease renewal or a business relocation are part of your plan in 2016, please give us a call.
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