Research identifies most expensive U.S. commercial real estate markets

The Building Owners and Managers Association (BOMA) International has identified the most expensive commercial real estate markets in the U.S. 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 2010.

The most expensive U.S. cities, based on total rental income, include:

1. New York, N.Y., $48.27 per square foot (psf)
2. Washington, D.C., $42.63 psf
3. San Mateo, Calif., $41.61 psf
4. Santa Monica, Calif., $36.67 psf
5. San Francisco, Calif., $34.86 psf
6. Boston, Mass., $31.15 psf
7. San Jose, Calif., $30.35 psf
8. Los Angeles, Calif., $27.97 psf
9. West Palm Beach, Fla., $27.71 psf
10. Chicago, Ill., $25.20 psf

Total rental income includes rental income from office, retail, and other space, which includes storage areas.  Amid the economic downturn in real estate markets, few markets demonstrated significant increases in rental income, suggesting that rental rates remain relatively stable and favorable for tenants seeking to pursue new leases or renegotiate existing ones. 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:

1. New York, N.Y., $21.44 psf
2. Washington, D.C., $16.86 psf
3. Boston, Mass., $15.16 psf
4. Morristown, N.J., $14.67 psf
5. San Francisco, Calif., $14.43 psf
6. Miami, Fla., $12.87 psf
7. Santa Monica, Calif., $12.84 psf
8. Plainfield, N.J., $12.83 psf
9. Chicago, Ill. and Los Angeles, Calif., 12.49 psf
10. Newark, N.J., $12.46 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.  In New York, average total operating plus fixed expenses were $21.44 per square foot (psf), while in Los Angeles, they averaged $12.96 psf. 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. BD+C