The Cost of Office Space Just Went Up

by CoyDavidson on January 25, 2012

Double Digit Hikes in Commercial Property & Casualty Insurance Rates Expected in Houston

Despite minimal hurricane activity, 2011 was one of the worst catastrophe years in history, the result from a rash of tornado and storm activity throughout the United States. Commercial property/casualty insurance rates are expected to increase in the 5% range overall in 2012. However, areas more prone to catastrophic casualties (Houston) can expect more significant increases of more than 10%.

What This Means for Office Tenants

Lease Agreements for a typical office building are complex contracts and most commercial leases provide a mechanism for common area maintenance and other building operating expenses (such as janitorial services, taxes and insurance) to be passed on to the tenant.

As a result office tenants can expect a notable increase in their operating expense bills in 2012 as commercial property owners are facing significant rate hikes in P&C insurance.

Operating expenses are typically estimated by the landlord in advance and are payable by the tenant on a monthly basis along with the base rent.  An annual settlement is generally called for with 90-120 days after the end of each year.

In Houston we are currently seeing signs of rent appreciation particularly in core submarkets where leasing activity accelerated in 2011. If you are in the market in 2012 you might be surprised at rental rates but regardless the cost of office space just went up.

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