Operating expenses in office buildings
Intro
In today’s presentation, we will review how the operating costs of office buildings have evolved in recent periods, what factors have driven these changes, and what trends we can identify going forward. Let's check out what's new in office building Service Charges in Budapest.
Definition of service charges
Service charges are a key component of a commercial offering in a lease agreement. Together with rent and utilities, they make up a significant portion of tenants’ monthly expenses.
These are defined as fees necessary for proper up keep of the property where the leased office is located.
By default, they are charged either in Hungarian forint or in Euro as monthly advances per gross square meter of office space, and then reconciled after the end of the calendar year. Any overpayments are refunded or credited for subsequent dues.
Underpayments must be made up. The amount of service charges is important from the point of view of both the tenant and the landlord, i.g. the owner of the property.
Definition of service charges
Several factors that influence the amount of property operating costs:
The specifics of the building – depending on the characteristics of the building and its standard, the various cost groups billed annually under the OPEX budget may vary.
The age of the building –level of the cost of technical maintenance New (under guarantee period) buildings vs old buildings
The area of the building
Mandatory services on sqm basis -> lower pro rata costs
Provisions of the lease agreements –contain a catalog of costs included in the service charges.
Tenant specific requirements
Costs – constituting the CAPEX budget are incurred by the owner and relate to capital expenditures for the property in terms of its modernization, installation of new equipment, or general repairs.
Components of service charges
Utility – is one of the main categories of operating costs,
• electricity distribution and sales,
• water supply and sewage disposal,
• heating (district or gas heating).
The share of utilities in the total operational budget in 2024 was still significant, but showed lower percentage overall.
In some cases lower SC is only an apparent result of the trend that some of the typical SC items such as heating and cooling costs are re-billed separately to the tenants.
Cleaning
Common area (labor + material)
Depending on the design of the building the cleaning costs are higher if the wet blocks are located in the common area, or if the building has a huge garage. A double glased window facade is also significantly more expensive to clean.
Components of service charges
Main building services maintenance, security, and reception, cleaning and landscaping.largest component of this cost is labor costs.
Substitute solution?
Others – other costs necessary to maintain the property, e.g. the cost of fire protection, repair costs, spare parts, insurance, and building management costs. Also building specific costs such as shuttle bus services.
Are costs still rising and why?
In 2025, compared with the past three years, we expect a noticeable deceleration in cost growth or a stabilization at around the average annual consumer price index (CPI) level, which stood at 3.7 % in 2024, down sharply from 17.1 % in 2023 and 14.6 % in 2022.
For services such as security or cleaning, cost increases may align with the rise in the minimum wage. The statutory minimum wage is set to increase by 9 % in 2025, compared to the previous year’s rate of 15 %, while the guaranteed minimum wage for skilled workers will grow by 7 % in 2025, down from 10 % in 2024 and 14 % in 2023
In terms of rents paid and converted from EUR, the annual HICP for 2024 was 2.4% for the European Union countries and 2.6% for the Eurozone.
The above-mentioned indicators continue to influence the prices of goods and services, which in turn shape operating fees. While these factors still drive cost growth, their relative impact has shifted, leading to more moderate increases. However, the fact that costs are no longer rising as steeply as in recent years does not mean they are low.
Change in average service charge rates
In addition to inflation, the primary contributors to changes in service charge levels are increases in labor and material costs.
Change in average service charge rates
Colliers conducted an analysis of category A office builidings regarding the rate of service charges in 2022, 2023, 2024 and (budget) 2025.
The study considered buildings located in Budapest.
The analysis revealed that the average increase in the rate of service charges in the examined office buildings was about 7% compared to 2024.
SUMMARY OF AVERAGE SERVICE CHARGE RATES
Source:Colliers
Changes in operating costs
CHANGE IN AVERAGE SERVICE CHARGE RATES IN THE ANALYZED PORTFOLIO
The increase in maintenance costs is caused by several factors. While the increase in labor costs has a constant impact on costs, the aging building stock incurs more repair costs, while in the case of new buildings, technological solutions make operation more expensive. Optimizing the services by reducing service levels or replacing expensive solutions to more beneficial such as using cleaning robots, replacing security guards with automatic entry systems, parking space management systems lower the service charge costs in overall significantly. This requires the close cooperation with the tenants, involving them is more and more crucial since tenant behaviour does have a huge effect on the service charge costs.
Changes in operating costs
The average electricity price in 2024 was between HUF 75-85/kWh, while for 2025 by HUF ~50/kWh.
This is a 30% decrease, however, all this is in vain if the energy consumption of occupiers and buildings is constantly increasing. Following last year’s significant increase in system usage charges, these are now stabilizing, and no further hikes are expected until the end of 2026.
This is currently 2% globally, but is expected to be higher and the rate of increase will be even greater in the case of office buildings.
Natural gas price trend largely mirrors electricity. Europe has managed to reduce its dependence on Russian supply, but this has created a new reliance on LNG. Current price levels of around EUR 30/MWh represent the bottom for natural gas prices.
The reason for the increase in consumption is the use of additional technologies that were not present in the operation even 5-10 years ago and the global warming. Automation solutions used to
replace human resources, such as replacing the garage master with an automated garage management service, require additional resources. Energy efficiency supported by BMS is a smart way to keep consumptions low.
Although milder winters require less heating energy, persistently warmer summers increase the need for cooling energy.
Green energy is currently more expensive in terms of cost, which landlord are increasingly forced to buy due to tenant and investor expectations. Also, the proportion of on site produced (solar) energy is negligible in terms of total energy consumption.
The most significant changes are expected in water/wastewater sector going forward. A privatization process is likely to commence in the near future, which will inevitably drive prices upward.
Reasons for changes in the service charge rates
Technical maintenance costs
As a building ages, it may require an increased financial commitment for maintenance and repairs
It is worth noting that the increase in maintenance fees can vary depending on the age, location, standard of the building, or its specifics.
Inflation
Increases in the prices of goods and services can increase maintenance fees. As the cost of building materials and services increases, so do the fees associated with maintaining the property (e.g. spare parts for equipment, transportation costs, and supplies).
Utility prices Increases in the price of electricity, heat, or water directly affect the increase in utility costs. Some of these increases may be due to global changes in energy commodity prices or energy policy.
Increases in local taxes and fees
Increases in rates for property tax, waste disposal, or other administrative fees resulting directly from the provisions of the Law or local Resolutions.
An increase in the minimum wage
Affects the cost of building maintenance services, such as security, cleaning, and maintenance, resulting in higher costs for these services, and thus an increase in operating costs.
Changing standards and regulations
New environmental, security, and building accessibility regulations may require greater financial outlays (e.g. increased disinfection during the COVID period, additional technical inspections, environmental fees, etc.), while modern technological solutions may translate into cost optimization.
HUF / EUR exchange rate
The variing HUF / EUR exchange rate influences the imported material goods fees. In 2019, the average exchange rate was 1 EUR to 325 HUF, whereas in 2024, it was 1 EUR to 395 HUF.
Tools optimizing energy consumption
Tools for optimizing energy consumption
• behavioral, i.e., changes in work habits in the office;
• operational, e.g., introducing intelligent solutions that optimize the operation of Building Management Systems (BMS) by up to 20%;
• investment, i.e., modernization and replacement of equipment and technical installations with more energyefficient ones.
In terms of optimizing media consumption:
• Directing investments towards modernization and replacement of equipment and technical installations with more energy-efficient ones.
• Introducing operating schedules for installations and equipment (based on the capabilities of building systems, but also technological tools based on AI, which analyze data in real time, learn the specifics of the building, adjusting parameters accordingly, taking into account external conditions, the number of users, and the use of office zones.
In terms of optimizing personnel costs:
• Smart access to properties - ereceptions, automations for entry onto the property, parking space management systems.
• Utilization of robotics and automation in financial and administrative processes – automatic invoicing, sending payment reminders, electronic document circulation.
* Reducing positions, e.g., physical security staff in favor of virtual security, should always be done after analyzing all risks, so that security, which is crucial, is maintained at the highest level.
Tools optimizing energy consumption
HVAC Management tools &
optimizing energy consumption
Collection and presentation of building data
• Utility meters
• Internal environmental paramenters (temperature, humidity)
• Individual device settings
• Nr of occupiers
• duration of occupancy/day/schedule
• Temperature
Proper programming of BMS not only timing but also detailed as
gas heating vs. heat pump
Tools optimizing energy consumption
Waste Management Systems
Data ?
Current solution for waste disposal (nr. of containers) vs. Personalized data for tenants
Because of lack of tracking possibilities cummulated data is available for the entire building
fair reconciliation transparent data break down of waste type feedback on The future is here
transparent data on a daily basis tracking of waste and CO2 savings planning for property managers
Level of operating costs
What causes such large discrepancies in service charge rates between buildings?
What to pay attention to?
1. How are individual utilities billed?
• Is the building metered, and to what extent?
• Does the service charges only include the costs of utilities used by building systems and common areas, or does it cover the entire consumption related to the leased area?
• Are utilities completely excluded from the service charges and billed as part of individual charges?
2. Who is responsible for the maintenance and repair of equipment installed in the leased area (e.g., inspections and repair of fan coil units, electrical measurements, replacement of lighting, etc.), and to what extent?
3. Avoiding lease agreement provisions that completely open the catalog of operational costs, giving Landlords the possibility of broad interpretation in terms of allocating costs, and thus charging tenants with costs that, in principle, should constitute the owner’s budget. There is no single, generally accepted way of billing the above costs. Everything depends on how they have been defined in the lease agreement - whether they are part of operational costs or fall under the so-called individual costs of the tenant.
Tenants expectations
Tenant awareness and focus is increasingly on service charges
Tenants want to have control over certain elements of operating costs; in addition to plannability and predictability, transparency is also important to them.
• Proper and transparent service charge reconciliation comparable to previous years.
• Justification on actual costs
• Accurate and justified SC advance payment level for next year
• Rate of utility fees
• Measures taken by management for (energy) efficiency
Tenants expectations
Office buildings must be safe, well maintained, green, and inviting to their users. Office building landlords and managers must constantly adapt to changing realities to attract and retain tenants.
Tenants want to have control over certain elements of operating costs; in addition to plannability and predictability, transparency is also important to them.
• Community programs
• Cooperation between management and tenants
• Energy efficiency
• Proper data delivery regarding the building and leased area
• Predictable costs for good planning
• Enhancing user experience
• Low/market level costs
• Problem solving attitude
• Environmental friendly solutions
• Green utility resources
ESG in the context commercial properties
What reports are expected by tenants?
What reports can property managers deliver?
Audit of service charges
A service charge cost audit is a service aimed at analyzing and verifying the expenses incurred by the property owner for its maintenance, which are charged to the tenants. The analysis is based on documentation related to the lease, as well as financial documents provided by the owner.
As a result of the conducted analysis, we are able to detect any irregularities in the prepared settlement and confirm or question the validity of the incurred expenses. Such actions allow for the optimization of leasing policy and property management, and thus serve as a useful control tool for the tenant.
Checking the settlement of service charges
In terms of properly allocating costs to the tenant in accordance with the lease agreement:
• Verification of the building area used for cost settlement
• Verification of the tenant’s leased area
• Verification of the tenant’s share in costs
Analysis of utility bills
Identification of potential savings and optimization, including unit rates and contracted capacity
Verification of financial documents
From which costs included in the settlement of the service charges arise, as well as any administrative decisions, declarations, as well as insurance policies or certificates
Analysis of service and maintenance costs
Based on the provisions and scopes of agreements concluded between the lessor and suppliers, regarding services offered within the managed building portfolio - comparative analysis to market average prices
Cost forecast
Information about planned changes in the prices of services and maintenance due to changes in legal regulations that may affect the operating fees of the building
Audit of service charges
Benefits for the client
Verification of the reliability of business partners who are the owner and property manager.
Ability to obtain reimbursement for wrongly charged fees, if any, are detected.
Ability to compare the service charge rates.
Greater awareness and ability to control the actions taken by the owner and property manager
Checking the possibility of implementing optimization, new technologic solutions.
Ability to analyze future billing, giving you better control over costs.
Contact us
DIRECTOR | HEA D O F ASSET SERVICES
tel.: +36 20 360 4483
e-mail: katalin.honi@colliers.com
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This report has been prepared by Colliers as a professional real estate advisory service provider, having the knowledge, experience and skills necessary to conduct this type of analysis, assisted by the team with relevant education and professional qualifications. Colliers has adopted the data and information available on the market and gathered from reliable sources as the basis for all analyses and calculations performed to prepare the report, taking into account the due diligence and professional nature of Colliers’ activities. Colliers has accepted the baseline data collected as correct and in accordance with the facts. Colliers takes no responsibility for the accuracy, reliability or completeness of the documents and information on which the analyses included in the report are based. This document does not constitute and must not be treated as investment or valuation advice or an offer to buy or sell a property. This publication is the copyrighted property of Colliers and/or its licensor(s).