How to Reduce Operating Expenses in an Office Building

By Gary E. Wilson, President & Designated Broker, Wilson Management, Inc.

Operating expense reduction is usually approached as a cost-cutting exercise, which is why it so often fails. Cuts made without understanding what the spend was buying tend to reappear as tenant complaints, deferred maintenance and eventually as vacancy — which costs far more than the saving.

The reductions that hold are the ones that remove waste rather than service. This is where that waste actually sits in an office building, roughly in order of what it returns.

One thing to establish first: in a building where expenses are recovered from tenants, a substantial share of any saving flows to them rather than to you. That does not make it pointless — a building with competitive occupancy costs leases better and retains better — but it does change which reductions are worth pursuing for their own sake and which are worth pursuing for the leasing advantage.

1. Controls and schedules

The largest single source of waste in most older office buildings is not equipment inefficiency. It is systems running when nobody is there.

Buildings accumulate adjustments over years. A schedule extended for an evening event and never restored. A setpoint overridden in response to a complaint. A sensor drifted out of calibration reporting a value that is simply wrong. Sequences written for the building's original configuration still running after that configuration changed.

The result is a building consuming energy outside occupied hours while the control panel reports everything as normal.

What to do: verify schedules against actual occupancy, compare controller readings against independent measurements, and check that sequences still match the building. This is inexpensive work with an unusually good return, and it typically improves comfort at the same time — the same drifted controls that waste energy also produce the complaints. See HVAC and Air Quality.

2. Service contracts nobody has read since signing

Service agreements renew automatically, and their terms drift out of alignment with what the building needs.

What to check: what is included versus billed as an extra, the response commitments you are actually paying for, whether parts are covered, after-hours escalation rates, and whether the scope still matches the building — a contract written when the building had different equipment is paying for the wrong thing.

Test the market periodically rather than constantly. Significant contracts every few years, with the incumbent invited to bid. A vendor who knows the building has real value, and rebidding everything annually is disruptive and consumes management time. But a contract that has never been tested is one where the pricing is whatever it drifted to.

3. Utilities

Beyond controls, the practical items are lighting, tariff and demand.

Lighting remains one of the more reliable returns, particularly in common areas, parking lots and stairwells that run long hours. In this region that is most of the day through winter.

Tariff structure is worth reviewing rather than assumed. Buildings sit on rates chosen years ago under different consumption patterns.

Demand charges, where they apply, respond to load management rather than to total consumption — which is a different problem from efficiency and has different solutions.

Where the building is subject to energy performance obligations, efficiency work has a second payoff: it serves both the operating budget and the compliance position. See Seattle Energy Benchmarking and Office Energy Compliance.

4. Preventive maintenance is a reduction, not a cost

This is counterintuitive and it is where most cost-cutting goes wrong.

Deferring preventive maintenance produces an immediate saving and a larger future cost. Equipment that is not serviced fails earlier, runs less efficiently in the meantime, and fails at whatever moment it chooses — which is usually the worst one, at emergency rates.

The reduction available here is not spending less. It is shifting the ratio from reactive to preventive, which lowers total maintenance cost over any multi-year period while also reducing the tenant disruption that reactive failures cause.

A building spending heavily on emergency call-outs does not have a maintenance budget problem. It has a scheduling problem. See Commercial Building Maintenance.

5. Scope and procurement

A large share of what a building spends is determined before anyone quotes.

Scope defined precisely produces comparable bids and a result whose completion can be assessed. "Repair the roof" produces three quotes for three different jobs.

Invoices checked against agreed pricing. Rate creep on recurring work is common and effectively invisible unless someone compares.

Work bundled where it makes sense. Trades charge for mobilisation; several small jobs across a year cost more than the same work scheduled together.

6. Waste, cleaning and consumables

Unglamorous and frequently oversized.

Refuse capacity and collection frequency set to actual generation rather than to what was arranged when the building had a different tenant mix. Buildings routinely pay for collections that arrive to half-empty containers.

Cleaning specification matched to actual use. Frequencies set for a fully occupied building may exceed what a partly occupied one needs — and the reverse is also worth checking, since under-cleaning shows immediately in common areas.

What not to cut

Some reductions cost more than they save, reliably.

Common area condition. Lobby, corridors, restrooms and lighting are what prospective tenants judge on tour and what existing tenants experience daily. Savings here surface as leasing difficulty.

Security and access control. Both a tenant expectation and a liability question.

Life safety. Not discretionary in any sense.

Anything affecting tenant operations. An interruption costs a tenant far more than it costs you, and that arithmetic drives renewals.

Insurance coverage, as distinct from testing insurance pricing.

Doing the analysis

Start from actual expense detail rather than from budget categories.

Compare the current year against prior years by line, ask what changed and why, and separate the lines that are genuinely fixed — taxes, insurance — from those that respond to management. Then compare against what the building recovers, since the recoverable and non-recoverable split determines who benefits from each reduction.

The output worth aiming for is a short list of specific, sized actions rather than a percentage target applied across the board. A blanket instruction to reduce expenses by ten percent produces cuts wherever they are easiest, which is rarely where the waste is.

Who benefits from the saving

Before pursuing any reduction, it is worth knowing where the benefit lands — because in a building with expense recovery, much of it does not land with the owner.

In a fully recovered building, reducing a recoverable expense mostly reduces what tenants pay. The owner's direct benefit is limited to the vacant space's share.

In a base-year building, the effect is more subtle. Reducing current-year expenses narrows the gap above the base year, which reduces recovery — so a saving in a recoverable category can reduce the landlord's income rather than increase it.

Non-recoverable expenses flow straight to the owner.

That does not make recoverable savings pointless. A building with competitive occupancy costs leases better, retains better, and compares favorably when a prospective tenant runs the numbers against a competing building — which is a real commercial advantage even when the cash benefit is the tenants'.

But it does mean the priority order should follow the recovery structure. Chasing a recoverable saving that reduces your own recovery, while a non-recoverable line runs unexamined, is effort in the wrong place.

Where to go next

Our Commercial Asset Planning page covers reading operating performance alongside capital, and Office Property Management covers the wider service.

To review your building's operating position, contact us or request a free analysis.