What Is an Operating Expense in Commercial Real Estate?
Operating expenditures, often abbreviated as OpEx, are ongoing costs incurred in the everyday business operations of a commercial property. These expenses can include utilities, wages, maintenance, repairs, marketing, accounting, and legal fees.
While operating expenses are usually necessary for seamless operation, property and business managers are responsible for keeping expenses as low as possible, without affecting the business's ability to stay profitable and competitive in the market. It’s important to make sure that reducing the expenses doesn’t compromise the quality of the operation of your business.
Understanding the Difference Between OpEx and CapEx
OpEx costs are a stark contrast to capital expenditures, also referred to as Cap Ex, which are costs related to purchasing or upgrading tangible and intangible assets. These include the renovation of a property, expansions, equipment acquisitions, or smaller repairs that can extend the lifespan of the property. Another key difference between the two is that operating expenses are fully tax deductible for the year they are incurred, whereas capital expenditures are not incentivized.