Office vacancy has declined in many major U.S. cities, but landlords are still dealing with squeezed margins as property costs continue to rise faster than revenue.
A Trepp analysis of office properties backing commercial mortgage-backed securities found that median operating expenses increased 2.7% annually from 2021 through 2025, compared with 1.3% annual revenue growth. Net operating income increased by just 0.2% per year.
Over the five-year period, operating expenses rose 14.3%, while revenue increased 6.7%. NOI grew just 1%.
Insurance and utilities drive costs
Property insurance was the fastest-growing expense, increasing a median 6.1% annually and 34.6% over five years. Insurance costs rose fastest in the Pacific region, where the median annual increase was 9.2%, according to Bisnow.
Utilities were the second-largest cost driver, rising 4.9% annually and 27.1% over the five-year period.
Other expenses also climbed. Building repairs increased 3.2% annually, payroll and benefits rose 3.3%, administrative costs increased 2.7%, and management fees grew 1.3%.
Landlords face more spending to compete
The figures do not include capital expenditures for property upgrades, which have become increasingly important as companies favor higher-quality offices with amenities that can help attract employees back.
Some landlords are also investing in older or lower-tier properties as leasing demand spreads beyond trophy buildings.
Trepp’s analysis matched individual properties across years. Its sample included 3,599 properties in 2021 and 2,266 in 2026, with properties leaving the sample for reasons including loan payoff, liquidation or missing financial data.
NOI fell 1.4% across Illinois, Indiana, Michigan, Ohio and Wisconsin over the five-year period. It also declined in the West South Central region and New England.
While operating expense growth has moderated, revenue growth has slowed as well. Annual NOI growth was negative for the second consecutive year in 2025.
