The office-property market is facing a significant challenge as expenses outpace revenue growth, leading to stalled net operating income (NOI). From 2021 to 2025, operating expenses for office properties backing commercial mortgage-backed securities loans grew more than twice as fast as revenues, according to Trepp Research.
Expenses Surge, Squeezing Office Property Income
Trepp’s analysis reveals that median annualized total revenue growth for these properties was a modest 1.3% over the period, while operating expenses increased by 2.7% annually. As a result, NOI growth was nearly flat, rising just 0.2% on an annualized basis, and even declining in the past two years.
This trend has significant implications for investors and lenders, as NOI is a critical factor in determining property values, debt-service coverage, and a borrower’s ability to refinance. The widening gap between revenue and expense growth is putting pressure on office borrowers, even in cases where revenue has continued to rise.
Insurance and Utilities Drive Cost Increases
The fastest-growing operating expense over the period was property insurance, with an implied annualized growth rate of 6.1%. Utilities also became a significant cost pressure, rising at a 4.9% annualized rate. While there was some moderation in 2025, it was not enough to reverse the overall trend.
Other operating costs, including payroll and benefits, repairs and maintenance, and general and administrative expenses, also rose faster than total revenue during the five-year period. Real estate taxes were a relative exception, increasing at a slower rate than total revenue.
The impact of these expense increases is felt across all regions, with every region in Trepp’s analysis recording annualized total revenue growth below annualized operating expense growth. This has resulted in varying levels of NOI growth, with some regions experiencing declines.
For office investors, the data suggests that modest rent growth alone may not be sufficient to stabilize cash flow. Owners must also contend with expense categories that have risen considerably faster, particularly insurance and utilities, as well as revenue streams beyond base rent that have weakened.
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In major metros like New York, Chicago, and Houston, NOI growth has been negative, highlighting the challenges faced by office properties in these markets. Even in Los Angeles, where revenue growth has been relatively strong, operating expenses have grown faster, showing the broader trend.
As investors assess their office exposure, they must consider not only leasing demand and debt maturities but also the material impact of expense growth on the office income equation. This adds further pressure to properties already facing a difficult refinancing and valuation environment, particularly in regions where expense growth has outpaced revenue increases, such as the East North Central and West South Central regions, where NOI growth contracted by 1.4% and 0.5%, respectively.
Revenue Streams Beyond Base Rent Weaken
While base rent income showed a modest increase of 1.6% annually, revenue streams outside of base rent declined significantly, falling by 3.8% each year. This decline in non-base-rent revenue has limited the overall growth in total revenue, which stood at 1.3% annually. Management fees, typically a percentage of effective gross income, mirrored this growth rate, increasing by 1.3% annually.
The weakening of revenue streams beyond base rent highlights the challenges office property owners face in maintaining stable cash flow. Even as some properties manage to preserve or modestly increase contractual rental income, the erosion of other revenue sources, combined with rising operating costs, has constrained overall financial performance. This dynamic shows the need for a wide-ranging approach to managing both income and expenses in the office property sector.
Regional Variations in NOI Growth
The impact of expense growth on net operating income (NOI) varied across regions, though all seven regions analyzed by Trepp experienced total revenue growth below operating expense growth. The Pacific region saw the strongest NOI growth at 0.9%, with revenue growing at 2% and expenses at 3.4%. In contrast, the East North Central region recorded a 1.4% contraction in NOI, as revenue grew by only 0.5% while expenses increased by 2%.
Other regions, such as the South Atlantic and Mountain regions, saw modest NOI growth of 1% and 1%, respectively. However, the West South Central region experienced a 0.5% decline in NOI, despite revenue growth of 1%. New England also saw a slight decline in NOI, falling by 0.1%, as revenue growth of 1.8% was outpaced by expense growth of 2.5%. Nationally, NOI growth remained nearly flat at 0.2%, reflecting the broader challenges faced by office properties across the country.
In major metropolitan areas, the pressure on NOI was even more pronounced. New York, Chicago, and Houston all recorded negative NOI growth, with declines of 0.6%, 1.9%, and 0.6%, respectively. Los Angeles stood out with positive NOI growth of 1.3%, but even there, operating expenses grew faster than revenue, illustrating the pervasive nature of the trend. Across the five major metros combined, NOI declined by 0.1%, further emphasizing the challenges in stabilizing office property income.