Operating Expenses (OpEx)
Recurring costs of running a property as a going concern, subtracted from income to calculate NOI, and often passed through to tenants under NNN or modified gross leases.
Definition
Operating expenses are the ongoing costs required to keep a commercial property operating: property taxes, insurance, management fees, repairs and maintenance, common area utilities, landscaping, snow removal, trash, and similar line items. They exclude debt service, capital expenditures, depreciation, and income taxes. In small bay industrial, who pays which OpEx line depends on lease structure. Under a triple net lease, most recoverable OpEx is billed to tenants via estimates and annual reconciliation. Under modified gross or gross leases, more of the stack sits with the landlord. Clean OpEx categorization matters for NOI, CAM true-ups, and comparing deals. Reclassifying the same work as capital one year and R&M the next changes reported NOI without changing cash spent.
Formula
NOI = Effective Gross Income − Operating ExpensesExample
A 40,000 SF NNN flex park has $140,000 in annual operating expenses ($3.50/SF): taxes $70,000, insurance $28,000, CAM and management $42,000. Tenants pay their pro-rata share monthly as estimates, then reconcile after year-end. Landlord-retained costs outside recoverable OpEx stay in the owner's P&L.
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