Office performance data over the past 10 years reveals headline figures that conceal deeper divergence, with revenues growing for only certain subtypes and geographies, while fixed and variable costs added pressure in some areas and relief in others, according to a Trepp analysis of operating expenses.
Across the country, sector property revenue increased by a compounded annual growth rate of 2.98%, while expenses increased by 2.5%, the analysis found. Net operating income grew by 3.34%.
However, a closer look reveals that medical office revenue and NOI outpaced inflation and government offices held steady, while urban revenue and NOI growth barely kept up with inflation and suburban revenue lagged behind the average rate of cost of goods and services, according to the analysis.
Fixed expenses such as insurance and real estate taxes were the most decisive force shaping the decade’s financials, according to Trepp. Insurance expenses grew 7.52% CAGR to 83 cents per square foot in 2024, from 43 cents per square foot in 2015. Real estate taxes also increased meaningfully from $4.85 per square foot to $6.03 per square foot, a 2.5% annualized increase. Combined, these two costs absorb more than 18% of total revenue, up from 16% a decade ago.
“The step-function nature of insurance repricing, tied to climate risk and reinsurance markets, makes it the most volatile element of recent office profit and loss statements, while tax growth depends heavily on jurisdictional assessment policies,” said the report.
In Chicago, the ratio of real estate taxes to revenue climbed to 32% in 2024 from 21% in 2015, a 55% increase, or a 4.8% annual rate. In Hartford, Connecticut, the ratio rose 78% and in Indianapolis, it nearly doubled, the analysis found. Dallas saw the most dramatic change, with the ratio increasing 127% over the decade. By contrast, Houston’s ratio fell 28%, Washington, D.C.’s declined 11%, and Los Angeles’ ratio eased slightly, Trepp said.
Variable expenses, including repairs, maintenance and professional fees, have also increased significantly, while most other expenses grew more slowly than inflation, according to Trepp. Repair and maintenance costs increased 3.7% annually to $2.21 per square foot and professional fees grew 4% annually to 43 cents per square foot. General and administrative costs, payroll and management fees all grew between 2.3% and 2.6% annually. Utility costs provided some relief, declining from $2.64 per square foot 10 years ago to $2.36 per square foot last year.
Deal type introduces another layer of divergence. Properties backing loans in conduits produced steady growth with revenues rising 3.3% annually to $36.37 annually, operating expenses climbing 2.8% annually to $15.18 per square foot and NOI rising 3.6% annually to $21.19 per square foot. By contrast, properties backing SASB loans lost ground with revenues falling by 1.6% annually to $55.45 per square foot, expenses declining by 1.7% annually to $25.99 per square foot and NOI contracting by an annualized 1.5% to $29.46 per square foot. This compression reflects the inability of many trophy assets to sustain revenue growth, whether due to rents or occupancy and ultimately, NOI against rising fixed costs.
Rents at properties backing conduit loans increased by an annualized 1.97% while rents at properties backing loans in SASB deals were essentially flat at a 0.08% annual growth. Capital markets pricing followed suit, per TreppCRE data. Implied capitalization rates at origination for conduit office loans rose to 7.74% in 2025 from 6.12% in 2020. SASB cap rates widened to 6.78% from 5.18% over the same period. The spread between the two has compressed to roughly 70 to 100 bps, where it used to be more than 125 bps, reflecting that capital markets now assign far less of a premium to trophy office assets, according to Trepp.
The report predicts three forces will shape future outcomes, including the trajectory of insurance costs, tax policy and suburban repositioning to medical or government tenants.
Source: “Decade of Office Performance Shows Sharp Contrasts in Revenue and Expense”
