Cost of Ownership

Not all office buildings can be converted into residential buildings.

Since 2020, the value of office buildings has declined.? But the cost of ownership is not the same as it was just five years ago.? In 2019, an office building with stabilized occupancy and consistent operating expenses was a pretty safe investment, and investors loved office buildings as an investment back then.?

In 2025, not so much.? Why, because the Cost of Ownership has become extremely burdensome.? Specifically: Capex, TI’s, Free Rent and runaway Insurance Costs.?

The period from 2020 through 2024 was difficult.? In 2020, COVID-19 obliterated the normal office workers daily life, and by the end of 2022 the culture of hybrid work became a paradigm shift for office workers and businesses.? From 2023 to 2024, the high-interest rate environment made it nearly impossible to borrow money, so many owners held back on making expensive repairs to roofs, lobbies, parking lots and mechanical systems.

With the runaway inflation impacting the cost of materials and labor, it has become ridiculously expensive to sustain ownership of an office building.? Capital repairs and TI’s have increased, while occupancy levels, and NOI’s are suffering.

What is an owner to do?? Appeal your taxes

Real Estate Taxes are one of the most significant operating expenses, and most owners will tell you that they are getting hammered.? Not only are the fundamentals of traditional income and expenses out of whack (Direct Cap may not work as a reliable valuation method), but the Cost of Ownership is not being addressed fairly. ?

If you need help fighting for a fair assessment, please contact me directly.

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Patrick T. Craig, MAI, MRICS

Practice Leader, Real Estate Valuation