Understanding Office Space Electricity Costs

New York City commercial real estate leases are notoriously long and complex. Most also include additional charges like electricity.

Energy costs are the largest charge in addition to the base rent you will pay for commercial real estate. However, not only can electric bills quickly add up to the thousands every month. Frequently, smaller tenants feel the most pain and get stuck paying for electricity they don’t even use.

As a tenant, you want to be able to predict and budget your electric costs.

So consider working with an experienced commercial real estate broker to help with all aspects of commercial property leasing. This includes ensuring a fair electric use clause in your lease.

3 Ways Electricity is Billed to Commercial Tenants

  • Rent Inclusion

    When landlords bill tenants with rent inclusion, they charge tenants monthly electricity at a fixed amount per square foot.​​ When electricity is billed as rent inclusion, energy costs are modestly marked up, and the landlord may make a small profit.

    Energy costs for spaces smaller than 2,500 SF are usually billed as rent inclusion, so smaller tenants tend to receive this billing method. It simply does not make economic sense for a landlord to install separate electric meters in small spaces.

  • Direct Electricity

    Direct electricity is typically the most cost-effective electricity billing method. This method permits the tenant to buy electricity directly from the utility company, so they pay for exactly the amount of electricity they use. However, an electricity meter must be present in the space for this to be an option.

    Full floors or large commercial spaces always have electricity meters, and spaces in loft buildings or former manufacturing buildings also tend to.

  • Sub-meter

    Under this method, the demised space has its own electric meter, which the landlord reads monthly. The landlord bills the tenant for the electricity consumed plus an administrative fee ranging from 5% to 20% of the base electricity costs.

    In some cases, the landlord of a large building may be able to negotiate better rates with the utility company than a tenant could. Thus, despite the administrative fee, it’s still relatively cost-effective.

The Key Takeaway

Electricity usage is only one component of additional monthly fees you may pay under your commercial real estate lease. Other components may include air conditioning, water, sprinkler, guard services, rubbish removal, and commercial liability insurance.

An experienced broker will not only help you understand the impact these costs will have on your rent. They will also help you avoid unnecessarily high fees and ensure a landlord treats you fairly

Would you rather talk this thru?

NYC energy costs can impact your bottom line. Connect with a commercial real estate expert to ensure you don’t overpay. Call or email us.

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