For most commercial buildings, energy is the single largest operating expense, most of which comes in the form of electricity. That being the case, the cost of utility-supplied power is of major concern to property managers searching for ways to lower costs. But controlling and cutting energy costs doesn’t happen overnight—it’s part of a larger educational process that starts with learning more about how you’re being billed, your industry’s energy profile, and your building’s specific energy dynamic.
To that end, a common question is this: What is the average utility cost per square foot for commercial property? We’ll answer that—and provide some related information on how industry energy profiles can be useful—in the sections that follow.
What is the average utility cost per square foot for commercial property?
The answer: The average cost of utilities for commercial buildings is $2.10 per square foot.
Other interesting facts related to how much utilities cost for a business:
- The total electricity expense for private-sector office buildings in 2016 was $1.69 per square foot.
- According to the 2012 Commercial Building Energy Consumption Survey (which was being updated as of 2018), commercial buildings spend $1.44 per square foot per year on electricity and $0.30 per square foot per year on natural gas.
- In 2018, refrigeration was the largest single use of electricity in the commercial sector, accounting for 13.9% of spending. For U.S. manufacturers, machine drives (motors) were the largest use of electricity.
- According to the U.S. Department of Energy, the average number of kilowatt hours per square foot for a commercial building is approximately 22.5. (You can see the breakdown on how energy is used here.) A food service facility consumes approximately 56 kWh/square foot, a retail mall 23, a public assembly building 15, and a warehouse 9.
- Looking ahead to 2050, lighting is expected to show the greatest reduction in electricity intensity (54%) thanks to more commercial buildings replacing incandescent bulbs with LED bulbs and compact fluorescent lamps.
- On-site electricity generation via solar is expected to increase by an average of 5% per year for commercial buildings.
- The three states with the highest commercial utility rates are Hawaii, California, and Alaska. (See the chart below for further rankings.)
What factors contribute to the cost of energy?
The cost of electricity is based on a number of variables, including the time of day you’re using it, the season of the year (summer rates can be higher than winter rates due to higher energy demand), and where you live. Click To Tweet
In combination with the factors listed above, you are billed based on your energy consumption and demand. Different industries have different requirements for energy use—for example, some buildings, like hospitals, operate 24/7, and food service facilities must power refrigeration units constantly. Other facilities, like schools, are open during limited hours and even close during the summer. Your energy demand is also a big factor in what you pay: Your maximum hourly power requirement over a billing cycle forms the basis of a utility’s demand charge, and comprises a significant portion of your bill.
Find out how you can reduce your energy costs in the peak demand and consumption areas up to 40% with remote monitoring.
How You Can Use Industry Energy Data To Reduce Your Operating Expenses
There are mountains of data related to industry energy use—use it to your advantage by benchmarking.
Facilities that benchmark have, on average, been able to reduce their energy consumption 8% in the first year and 40% over 10 years.
Benchmarking is the process of measuring your building’s energy performance against that of other buildings, with an eye toward making improvements. You need two things to be able to benchmark your building’s energy use:
- Energy use data for buildings similar to yours and in the same industry. The U.S. Department of Energy, the U.S. Energy Information Administration, Building Managers & Owners Association, and other organizations regularly conduct studies and surveys regarding energy use; they provide numerous metrics that paint a picture of energy-related spending and consumption across industries. (Our Energy Benchmarking Report can get you started.)
- Your own building’s energy consumption data. Once you have a better understanding of how your industry peers are consuming energy, you need something to compare, which means you need to start gathering data that shows your own building’s energy patterns and consumption. Over a period of time, you’ll gain a better understanding of what activities are associated with your energy usage, including what you’re spending the most money on.
Many building managers are already collecting this type of data with the help of the Internet of Things (IoT).
How To Use The IoT To Decrease Utility Costs
Your utility bill tells how many megawatt hours of energy your building used over a certain period of time, but that data isn’t detailed enough to be of much help. For example, your bill won’t show how energy is consumed—for example, how much electricity your HVAC uses vs. lighting. It also won’t reveal your energy use patterns, such as when the most water is typically used or when your HVAC consistently works overtime. Benchmarking—and taking follow-up action to decrease utility costs—requires having specific data about your building’s subsystems that can be compared and analyzed.
The IoT gives you the ability to understand how your building works on a more granular level. Wireless IoT sensors are capable of monitoring any of your facility’s subsystems—lighting, HVAC, machinery, water, and more—with great accuracy. Gaining a better understanding of your energy profile naturally exposes inefficiencies, and allows you to make meaningful comparisons with industry competitors that will further reveal areas ripe for improvement.
For example, continuous monitoring by IoT sensors might reveal that…
your HVAC system uses more energy than the average comparable building in your industry, and that it’s responsible for the largest portion of your energy spending. Further investigation shows that it turns on every day three hours before the first employee arrives at work. You could potentially save tens of thousands of dollars simply by turning the system on two hours later.
Another example of benchmarking and targeted action:
If your average utility cost per square foot of commercial property is higher than that of your competitors, you may decide to implement IoT monitoring to understand why. A few weeks’ worth of data reveals a pattern: Most of your high-power equipment and building systems are operating during the electric company’s hours of high demand. You could again save thousands by alternating HVAC operation by floor for an hour at a time, scaling back on lighting where appropriate, and timing the use of high-power equipment to avoid operation at those key times.
One of our customers implemented IoT sensor monitoring after noticing an unusual increase in its water bill. The result:
IoT sensors revealed that one of its water-cooled refrigeration units was continuously calling for water circulation, wasting more than 10,000 gallons of water daily. After addressing the issue, this customer now saves more than $115,000 annually on its water bill.
You can get as granular as you like with the IoT, monitoring the energy consumption of individual pieces of equipment, specific processes, specific floors or even rooms. The more data you collect and analyze, the more opportunities you’ll have to make meaningful changes for the better.
Looking for ways to lower your building’s utility costs?
If you’re looking for ways to improve your building’s performance, getting your energy profile is the first step.
Iota’s team of IoT experts can get the job done. Tell us about your goals for your facility, and we’ll work with you to design an appropriate data collection strategy, decipher all the data from your sensors, and offer guidance and recommendations around how best to reach your goals. We’ve helped numerous Fortune 100 clients decrease their facility’s energy consumption—and by extension their utility costs; let us do the same for you! To learn more, visit our website or talk to us.
FAQs
What Is The Average Utility Cost Per Square Foot Of Commercial Property? ›
According to data from the Commercial Building Energy Consumption Survey, office buildings in the U.S. spend on average $1.44 per square foot on electricity and $0.30 per square foot on natural gas annually.
What is the formula for utility cost? ›Multiply kilowatts by the average amount of hours the appliance is in use. Multiply that number by 30 days to calculate the average kWh your appliance uses each month. Multiply that number by your kWh rate to estimate your electric bill for the month.
How many watts per square foot for commercial building? ›In an office building the lighting and normal "floor" (equipment) electrical loads typically average from two (2) to five (5) watts per square foot.
What is the average utility cost per square foot of commercial property in Canada? ›While it can vary significantly depending on the building and what the intended use is, for industrial properties, we suggest budgeting between $2.00 – $3.00 / sq ft for utility costs1.
What are utilities expenses in office? ›Utilities Expenses are the cost that the company incurs during a period to avail of the services provided by the public utility companies in the place of operation like the telephone facility, electricity, gas, water, sewer, etc.
How do you calculate utility and expected utility? ›Expected utility is calculated by adding (probability x utility) for each outcome. The expected utility can be maximized by increasing the probabilities.
What are the methods of calculating utility? ›Average Utility is derived by dividing the total utility obtained by a consumer by the number of units of X commodity consumed. Marginal Utility refers to the additional utility resulting from the consumption of additional units of a commodity.
How do you calculate price per square foot for a commercial building? ›It denotes the site dimensions of office buildings, retail centers, and industrial buildings. It can be calculated by dividing the price of the building by the building's square feet. For example, if a 2500 square foot building is selling for $250,000, then the PPSF is $100.
What is per square foot operating costs? ›Per Square Foot Operating Expenses means the amount of Operating Expenses for any Adjustment Year divided by the number of square feet comprising the rentable area of the Building, or the Complex, as applicable.
How do you calculate commercial electrical load? ›Multiply the volt-ampere unit load (for the type of xxxxxxxxxxx × xxxxxxxxxxxxxxxxxxxx = 5 occupancy) by the square foot outside dimensions. An 8,500-square-foot bank has a general lighting load of 29,750 volt-amperes (8,500 × 3.5 = 29,750).
What is the average operating expense ratio for commercial real estate? ›
What is a typical operating expense ratio for office properties? For office buildings, a good operating ratio usually falls between 35% and 55%, depending on the lease terms.
How do you calculate operating expenses in commercial real estate? ›In commercial real estate, the operating expense ratio is a measurement of the cost to operate a piece of property compared to the income that property brings to the investor. It can easily be calculated by dividing the property's operating expenses (not including depreciation) by its gross operating income.
What are commercial expenses? ›Commercial Expenses means those expenses incurred for the purpose of the Commercialization of the Finished Product which are consistent with the budget set forth in the Commercialization Plan and are specifically attributable to the Commercialization of Finished Products, and shall consist of (i) Cost of Goods Sold, ( ...
What is an example of a utility cost? ›The example of household utilities expenses includes the water expense, electricity expenses, gas expenses, maintenance expenses etc. and examples of commercial, i.e. business utilities expenses include repair cost of machinery, selling commission, basic packaging expenses etc.
What is the normal balance of utilities? ›| A | B |
|---|---|
| The normal balance side of SALES | Credit |
| The normal balance side of ADVERTISING EXPENSE | Debit |
| The normal balance side of UTILITIES EXPENSE | Debit |
| The normal balance side of MISCELLANEOUS EXPENSE | Debit |
The Utilities sector comprises establishments engaged in the provision of the following utility services: electric power, natural gas, steam supply, water supply, and sewage removal.
What is the formula for the utility function? ›A utility function that describes a preference for one bundle of goods (Xa) vs another bundle of goods (Xb) is expressed as U(Xa, Xb). Where there are perfect complements, the utility function is written as U(Xa, Xb) = MIN[Xa, Xb], where the smaller of the two is assigned the function's value.
What is expected utility per use? ›What Is Expected Utility? "Expected utility" is an economic term summarizing the utility that an entity or aggregate economy is expected to reach under any number of circumstances. The expected utility is calculated by taking the weighted average of all possible outcomes under certain circumstances.
What are the four 4 types of utility? ›There are four basic principles that fall under this umbrella, including form utility, time utility, place utility, and possession utility.
What are the 3 types of utility? ›Types of Utility. There are mainly four kinds of utility: form utility, place utility, time utility, and possession utility. These utilities affect an individual's decision to purchase a product.
What are the 3 different types of utility? ›
Place utility: this utility is derived when you can transport goods from one place to another. Time utility: it is derived by keeping or storing goods over a period of time so that they can be used later. Service utility: it is derived by rendering professional services to consumers.
What is the average square footage of a commercial building? ›The average size of buildings constructed before 1960 (26% of the commercial building stock) is 12,000 square feet; buildings constructed between 1960 and 1999 (55%) average 16,300 square feet; and buildings constructed in the 2000s (18%) average 19,000 square feet.
How is square footage calculated for commercial real estate? ›To measure commercial square footage for a rectangular space, multiply the length of the room in feet by its width. For example, a room that is 12 feet long by 12 feet wide is 144 square feet.
How do contractors calculate square footage? ›Measure the length and width of the building's walls. Multiply the length and width measurements to find square footage. Remember to multiply the square footage times the number of floors in the building if your facility has more than one floor.
What is the average daily operating cost? ›Average Daily Operating Cost means in respect of any period, the aggregate of all Operating Costs incurred for that period divided by the time (expressed in days to two decimal places) in that period.
What are the two main types of operating costs? ›A business's operating costs are comprised of two components, fixed costs and variable costs, which differ in important ways.
Why does price per square foot matter? ›“[Price per square foot] gives buyers a sense of where a listing sits relative to other listings on the market,” she says. “If a listing's price per square foot is dramatically different than other similar homes on the market, it signals to buyers that the home may be priced too high or too low.”
What is the average electrical load for a commercial building? ›In an office building the lighting and normal "floor" (equipment) electrical loads typically average from two (2) to five (5) watts per square foot. However, architectural or other considerations may make them considerably higher.
What is the load factor of a commercial building? ›The load factor is calculated as the amount of rentable square feet divided by the amount of usable square feet. For example, if an office building has 10,000 square feet of rentable space but only 8,000 square feet of usable office space, the load factor would be 1.25 (10,000/8,000).
How electricity load is calculated in a bill? ›- Basically, the electrical load calculation means the total of Amps of all your appliances and fixtures.
- Amps = watts/volts.
- Watts = Amps x Volts.
What is a good operating cost? ›
The ideal OER is between 60% and 80% (although the lower it is, the better).
What percentage should be operating cost? ›The normal operating expense ratio range is typically between 60% to 80%, and the lower it is, the better. “Below 70%, you're doing a really good job of controlling expenses,” says Vice President AgDirect Credit Jerry Auel.
What is average operating expenses in a business? ›An operating expense is an expense that a business incurs through its normal business operations. Operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds allocated for research and development.
Are utilities an operating expense? ›Operating expenses definition
They include rent and utilities, marketing and advertising, sales and accounting, management and administrative salaries.
The rule of thumb to qualify for a mortgage with the housing expense ratio is that anything below 28% is good. Above 28%, you may be stretched too thin and may struggle to cover your monthly mortgage payment or other debt obligations.
How do you calculate operating and owning costs? ›Owning costs = purchase price of machine + financing + taxes – disposal price (what you get for that machine when you resell it). Operating costs = labor + fuel + maintenance + replacement costs of tires, tracks and other components + overhead. Add the owning to the operating costs and you have your O&O costs.
What is the average commercial budget? ›AVERAGE COST OF A TELEVISION COMMERCIAL
To summarize, the average cost of TV commercial production ranges from about $1,200 per minute to somewhere north of $100,000. Typical commercials in the markets our studio serves are generally in the neighborhood of $1,500 to $20,000 for most projects.
Examples of expenses include rent, utilities, wages, salaries, maintenance, depreciation, insurance, and the cost of goods sold. Expenses are usually recurring payments needed to operate a business.
What are capital expenses on commercial property? ›What is a capital expenditure in commercial real estate? Capital expenditure or "CapEx" are the funds used to acquire, upgrade or repair the property. It also includes the acquisition of equipment for said property. An expenditure is considered a CapEx if it is a new purchase or extends the life of the property.
What utility costs the most? ›- The average American family spends $5,640.72 on utilities (including electricity, gas, water, waterwaste, broadband internet, and phone service)
- Electricity is the most expensive utility in a typical household.
- Utility costs should not exceed 10 percent of your gross income.
What is utility in pricing? ›
Utility refers to the total satisfaction or value that you get from consuming a particular product or service. Utility values are critical for determining why different goods have different costs and levels of demand. Products with higher utility usually have more demand, meaning they can command higher prices.
Is utility equal to price? ›So long as the consumer selects a bundle of purchases that gives him the most benefit (pleasure, utility) for his money, he must end up with quantities such that the marginal utility of each commodity in the bundle is approximately equal to its price.
What percentage of utilities should be in my budget? ›While it can be hard to pinpoint precisely how much your electric or water bill will cost each month, credit counseling agencies suggest planning to spend 5% to 10% of your annual income on utilities.
What is normal balance cost? ›The normal balance of cost of goods sold is debit. The cost of goods sold is an expense account that includes all the expenses to make a company's product, including inventory and associated labor. The normal balance for any expense account is debit.
How do you record utility bills in accounting? ›Answer and Explanation: The journal entry to record the payment of the current month's utility bill would include b) a debit to Utilities Expense and a credit to Cash. If the payment of the utility was using a credit card and not a check, you would record the payment as a credit to Accounts Payable instead of Cash.
What are the most common utilities? ›Typically, utilities include electricity, water, and gas bills. You can also add sewage, trash, and recycling, as well as TV, internet, phone, and streaming services to the list. ⏰ TIP: Utility bills are often used as proof of residence, especially for licensing and passport needs.
What are the four most common types of utility? ›Summary. In the field of behavioral economics, the term utility refers to the perceived value (i.e., usefulness) an individual receives when they purchase a good or service. There are four different types of utility: form, place, time, and possession utility.
What are basic utilities? ›Utilities in a home include electricity, gas, water, sewer, Internet, telephone, cable TV, security systems and, in some areas, trash collection. These essentials are the things you need in daily life to ensure you have a working, comfortable, livable space.
What is the formula for maximum utility? ›When multiple products are being chosen, the condition for maximising utility is that a consumer equalises the marginal utility per pound spent. The condition for maximising utility is: MUA/PA = MUB/PB where: MU is marginal utility and P is price.
What are utility costs examples? ›- Water.
- Heating/Cooling.
- Electricity/gas (in addition to heating/cooling, this covers lighting and general electrical needs)
- Trash/recycling.
- Landline phone.
- Internet/cable.
What is the formula margin utility? ›
The formula for marginal utility is change in total utility (ΔTU) divided by change in number of units (ΔQ): MU = ΔTU/ΔQ.
How do you calculate marginal utility and average utility? ›- Find the total utility of the first event.
- Find the total utility of the second event.
- Find the difference between both (or all) events.
- Find the difference between the number of goods between both (or all) events.
- Apply the formula.
Maximum Expected Utility (MEU)
The principle of maximum expected utility states that a rational agent should select the move that maximizes the agent's expected utility. In other words, the MEU principle is a prescription for intelligent behavior.
Average utility refers to the utility that is obtained by the consumer per unit of commodity consumed. It is calculated by dividing the total utility by the number of units consumed.
What is an example of utility in business? ›What Is an Example of Economic Utility? The term economic utility refers to the total degree of satisfaction someone gets from using a product or service. It may be a car, house, food, clothing, financial services, or housekeeping.
What is a good profit margin? ›Your profit margin can tell you how well your business performs compared to other market players in your industry. Although there's no magic number, a good profit margin will typically fall between 5% and 10%.
What markup is 40% margin? ›40% margin = 66.7% markup.
What is a good markup percentage? ›What is a Good Markup Percentage? While there is no set “ideal” markup percentage, most businesses set a 50 percent markup. Otherwise known as “keystone”, a 50 percent markup means you are charging a price that's 50% higher than the cost of the good or service.