Office Rents, Double-Dip With Operating Expenses, Inflation Worries

Around the United States I have been hearing concern from landlord broker reps that with inflation rates rising, in many areas the standard annual rental increase of 3% might not be enough to keep up. The Federal Reserve Board seems to think that inflation is temporary. This reminds me, as a tenant representative broker, how landlords routinely double-dip from tenants anyway. Most (not all) office leases are on a full-service basis, including property taxes, property insurance, sewer, water,  janitorial, utilities and building maintenance. Most office leases are written with a base year, usually the first year of occupancy, in which all these expenses are included in the base rent. Each year the tenant is billed their prorate share of the increase in operating expenses over the base year, which might be in the 4-8% a year range. To use as an example a $36/rsf annual full-service rental rate, of this $12/rsf might be for expenses, and if the landlord is charging an annual escalation of say 3% this applies to the entire rent, which means the tenant is paying twice on the expense portion of the rent.