Budgeting for the Hidden Costs of Office Operations

When you are planning your annual budget, calculating your operating costs can feel like a moving target. It’s difficult to know if your office’s budget for cleaning,  repairs, and maintenance are on par with other offices in your market and what the average rate of these services is for your specific region.

To help facilities, operations, and office managers plan and budget, BOMA International releases their annual Office and Industrial Experience Exchange Reports (Office EER and Industrial EER) for office and industrial buildings. These reports collect income and expense data from buildings across the United States and are a comprehensive benchmarking resource for the commercial real estate industry. The data can enable property and facility managers to evaluate their operations, build more realistic budgets, and identify opportunities for cost-savings.

Using 2018 Office EER data, we compared national averages to MSA data from the cities Managed by Q serves (New York City, San Francisco, Oakland, Silicon Valley, Los Angeles, Chicago, and Boston) to identify unexpected costs and better highlight how costs can vary by market.

Operational Budget Averages

Based on BOMA International’s national averages of office expenditures per total rentable square foot of office space from the 2018 Office EER, facility managers can expect their operations budget to generally break down in the following manner:

• Fixed expenses (property and real estate taxes, insurance) 41%
• Repair and maintenance 17%
• Regular and specialty cleaning 13%
• Administrative costs 13%
• Security 6%
• Other (utilities, roads and grounds, telecoms) 10%

There was some variance between markets, specifically that the percentage of budgets spent on fixed costs in New York, Chicago, and Boston were higher than the national average. This may be due to higher tax and insurance costs in these cities. In general, operating costs in these markets, which are all major metropolitan areas, are higher than the national average.

Budget for people

Despite having relatively unchanged cleaning and maintenance needs year-over-year, wages, benefits, and payroll taxes make up about 30% of service costs for offices nationally, according to BOMA International’s latest Office EER, and they are subject to rise. In California and New York, the minimum wage was recently raised to $15, which will have an impact on the cost of cleaning in these markets. In addition, you may need to pay more for specialty services like maintenance that require an experienced service provider, such as a certified electrician.

When budgeting for your cleaning and maintenance providers, factor in the changes to the minimum wage laws in your city and state. In addition, research the average hourly rate and salaries for service providers in your area. Not only will this enable you to budget accurately, but it will also help you understand if project quotes are high compared to your city average.

Budget for upkeep and specialty services

When forecasting your annual or quarterly budget, it can be easy to overlook certain facility services, which can lead to inaccurate budgets and unexpected expenses. According to BOMA International’s Office EER, it’s industry standard to budget separately for the following services, which are often not included in a tenant’s rent:

• Exterior window washing: Many landlords do not provide this service
• Trash hauling: This service is more expensive in the Bay Area due to stricter recycling laws and a recent rate increase for waste collection and recycling services
• HVAC maintenance: Most buildings require tenants have a contract with an HVAC service provider, although they may control the system operating times
• Maintenance for aging equipment and facilities
  • In older buildings, electrical and mechanical upgrades can save money in the long run, but need to be included in your budget
  • While many companies often budget for building new facilities, they often overlook budgeting for maintenance of existing offices or buildings

In general, regular maintenance can lower your total costs because it prevents small issues from becoming large, unplanned expenses. Maintenance budgets can be equivalent to, if not more than, cleaning budgets, and are crucial for maintaining a functional office.

To understand how your facility’s budget compares to others in your area, you can subscribe to BOMA International’s online Office EER benchmarking report. For clarity on which services are included in your lease, Managed by Q provides free lease analysis so you can develop your budget with confidence. Our workplace experts can also advise how you can bundle regular cleaning, maintenance, and specialty services to save on your annual operational costs.

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