CHICAGO – (August 3, 2018) – As the demand for performance benchmarking rises, particularly among institutional owners, the availability of accurate data becomes increasingly important. Real estate managers across all property sectors rely on accurate benchmarking information to make sound decisions on everything from assessing their properties’ operating efficiency to comparing their property performance against others in the competitive set. The risks of using incorrect data to create long-range forecasts are big, and can translate to lost opportunity and revenue for building owners and investors.
With the most recent release of their annual Income/Expense Analysis Reports, IREM (Institute of Real Estate Management) aims to alleviate the risk and uncertainty that real estate managers face. These reports are comprehensive, detailed studies featuring income and expense data from over 10,000 properties in major metropolitan properties and regions across the U.S. The reports cover five different property types (Condominiums, Cooperatives & Planned Unit Developments; Conventional Apartments; Federally Assisted Apartments; Office Buildings; and Shopping Centers) and allow real estate management professionals access to information on revenue, expense, and vacancy trends; turnover trends; energy consumption analysis; utility and maintenance costs; tax and payroll expenses; and much more.
“Everybody is stressed and feels they have to do more in less time. What’s important about benchmarking is vettable data that’s been scrubbed, relied upon, and contributed by property managers who want to contribute good data to make good decisions,” notes Craig Cardwell, CPM, Principal at Island Investment Interests. “That’s the biggest mistake people make – they don’t benchmark. It’s a big mistake and it crosses all sectors of the industry.”
Trend Highlights Include:
OFFICE BUILDINGS
Operating data from office properties in both downtown and suburban areas reflect a mature real estate market and a strong job market. This can be seen in building occupancy levels, which remained steady or increased in 2017.
- Total actual collections trended downward from $19.76 per square foot in 2016 to $19.66 in 2017 for suburban office buildings and from $24.05 per square foot in 2016 to $22.19 per square foot in 2017 for downtown office buildings
- Conversely, net operating costs went from $7.41 per square foot in 2016 to $7.63 per square foot in 2017 for downtown offices and from $5.90 per square foot in 2016 to $5.92 per square foot in 2017 for suburban offices
- There are clear geographic variations among net operating costs, with downtown buildings in the northeast and mid-Atlantic at $9.85 to $6.30 in the southeast.
CONVENTIONAL APARTMENTS
Urged on by renters-by-choice – including both millennials and baby boomers seeking to downsize – as well as for affordability reasons, the fundamental demand for rental housing continued unabated in 2017. The steadiness of the market is reflected in operating results for conventional apartments reported.
- Gross possible rent grew more than 3% across all building types – somewhat more aligned with historical rent growth than in prior years.
- Garden buildings showed the greatest increase, jumping by 3.8% over the prior year and going to $12.56 per rental square foot. Elevator buildings reflected the highest gross possible rent, coming in at $20.53 per rentable square foot, a 3.2% increase over 2016.
- The data does show an increase in vacancy and rent loss. On a national level, elevator buildings took the dubious lead in this area, clocking in at 7.1% vacancy.
- The vacancy rate for elevator buildings is just slightly above the vacancy and rent loss experienced by larger low-rise buildings (6.9%) and garden apartment communities (6.8%).
SHOPPING CENTERS
Gross minimum rents, actual minimum rents, and total annual income all fell between 2016 and 2017, as did occupancy rates. Looking at the shopping center market from a national level based on gross leasable area (GLA):
- Gross minimum rents fell from $15.22 per square foot in 2016 to $14.57 per square foot in 2017
- Actual minimum rents dropped from $13.46 per square foot in 2016 to $12.46 per square foot in 2017
- Total annual median income per square foot similarly fell – from $17.26 in 2016 to $16.01 in 2017
- And occupancy dropped from 95% to 94% in 2017
FEDERALLY ASSISTED APARTMENTS
Some 5 million low-income households in the United States receive federal rental assistance, according to U.S. government estimates, enabling them to rent modest housing at an affordable cost.
- Median income and operating costs at family and elderly housing reveals that total collections across all family buildings continued to increase, moving up to $12.34 per rentable square foot from $12.12 a year earlier.
- Expenses grew from $6.90 in 2016 to $7.85 in 2017, resulting in net operating income of $4.76 per square foot in 2017, down from $4.91 in 2016.
CONDOMINIUMS, COOPERATIVES, AND PLANNED UNIT DEVELOPMENTS
Current estimates indicate that 20% of the U.S. population – one out of every five Americans – lives in a homeowners’ association community of some type, including high-rise condos in urban centers to sprawling planned unit developments.
- For condominiums, total operating expenses across all building types dropped by .4% to $2,980.72 in 2017.
- A more detailed look reveals that high-rise buildings’ expenses increased by 5.4%, while townhouse properties’ expenses decreased by 8.1%.
- Total operating expenses for planned unit developments dropped by 2.8% across all building types.
The Income/Expense analysis reports are available in a variety of formats including books, interactive PDFs and customizable tools where a real estate manager can plug in their information and make direct comparisons to the market. Property managers, asset managers, appraisers, assessors, developers, lenders, and anyone engaged in investment real estate can order these reports directly from the IREM website.
About the Institute of Real Estate Management
IREM is an international force of 20,000 individuals united to advance the profession of real estate management. Through training, professional development, and collaboration, IREM supports our members and others in the industry through every stage of their career.
We believe in our people, and we provide the tools they need to succeed. We open doors, we forge connections, and we help show the way forward. Backed by the power that comes with being an affiliate of the National Association of REALTORS®, we add value to our members, who in turn add value to their teams, their workplaces, and the properties in their commercial and residential portfolios.
Our memberships empower college students, young professionals, and industry veterans who are committed to career advancement. Earning our credentials, including the CPM, ARM, ACoM, and AMO, demonstrates a commitment to, and passion for, good management. These credentials, along with our courses and array of resources, all exist with one goal in mind – to make a difference in the careers of those who manage. To learn more about IREM, visit www.IREM.org.