How to Calculate Annual Net Operating Income for Leased Office Space?

What is the annual net operating income for a leased office space?

Given the data that a 2874 square foot office space is leased at $13 per square foot, with office expenses of $96.50 per square foot and an expense stop set at $6.00 per square foot, what is the annual net operating income?

Answer:

The annual net operating income for the leased office space is $31,628.20.

In order to calculate the annual net operating income for a leased office space, we need to consider various factors such as lease income, office expenses, and any expense stop set in the lease agreement.

Step 1: Calculate the annual lease income

The leased office space is 2874 square feet, and the lease rate is $13 per square foot. Therefore, the annual lease income can be calculated as follows:

Annual lease income = Leased area × Lease rate

Annual lease income = 2874 sq ft × $13/sq ft

Annual lease income = $37,362

Step 2: Calculate the total annual office expenses

The office expenses are $96.50 per square foot. Therefore, the total annual office expenses can be calculated as follows:

Total annual office expenses = Leased area × Office expenses

Total annual office expenses = 2874 sq ft × $96.50/sq ft

Total annual office expenses = $277,791

Step 3: Calculate the annual expense stop

The expense stop is set at $6.00 per square foot. Therefore, the annual expense stop can be calculated as follows:

Annual expense stop = Leased area × Expense stop

Annual expense stop = 2874 sq ft × $6.00/sq ft

Annual expense stop = $17,244

Step 4: Calculate the net operating income

To calculate the net operating income, we subtract the total annual office expenses and the annual expense stop from the annual lease income:

Net operating income = Annual lease income - Total annual office expenses - Annual expense stop

Net operating income = $37,362 - $277,791 - $17,244

Net operating income = -$257,673

However, the space is vacant for one month out of the year, which means there will be no lease income during that month. To adjust for this, we subtract the lease income for one month from the calculated net operating income:

Adjusted net operating income = Net operating income - Lease income for one month

Adjusted net operating income = -$257,673 - $37,362

Adjusted net operating income = -$295,035

Therefore, the annual net operating income for the leased office space, accounting for the vacancy period, is -$295,035. A negative net operating income indicates a loss in this scenario.