Next Year’s Budgets: What’s your status?
How are you doing with your commercial property budgets for 2026? Here at Meissner, budget season has taken off! If you’re feeling challenged to complete your commercial property budgets, here are some insights, contributed by our experienced team of real estate managers and accountants, that may help you gain the momentum you need!
1. GETTING STARTED: Define the purpose of the budget.
Start identifying your goal for both the budget and the subject property or portfolio. This sounds obvious, but sometimes we launch into a complex project such as creating a budget and dive right into the details and mechanics – with great intentions of powering through it – only to find we get bogged down in numerous decisions soon after we begin.
When creating a commercial real estate budget, it’s important to start with the end in mind. What is the purpose of your budget? Who are the users? Are there other investors with specific reporting needs related to property performance and financial reporting metrics? Or will the budget be mainly used by an internal owner/manager team to guide operational activities and related expenditures?
2. Define the goals and plans for the property.
Once you have identified the purpose for the budget and the needs of its users, define the specific goal for the property. Is your priority to maximize the cash flow? Or maybe, create value by investing in improvements now to reap a larger gain upon sale in the future? This will help you prioritize decisions concerning budgeted uses of funds and management resources and will ensure your management of the property supports your objectives and for it.
3. “Piggyback” off of current year actuals with a current year reforecast.
Create a reforecast of the current year. A reforecast would include actual income and expenses recorded to date in the current year. Use this reforecast as the first budget draft for the same months in the year to be budgeted. If your property management accounting software does not have a function to automate this reforecast, seek a consultant with expertise in your software who can automate this reforecast for you.
4. Start with what is known.
There are many items to include in a commercial real estate operating budget, and looking at an empty software template or Excel workbook can feel overwhelming. Start with what is known or is unlikely to vary greatly from historical norms. For rental income, start with non-expiring leases and those highly likely to be renewed, and factor in any scheduled rent increases. For expiring leases, project income through the end of the lease term and consider completing the projection for that space after a separate analysis of new potential lease rates and needed incentives.
Known expenses include utilities, minimum expected repairs and maintenance, property taxes, and insurance premiums – subject to potential rate increases.
For mortgage payments and the related interest expense, refer to the loan amortization schedule or ask for an updated one from your lender.
Once these knowns are complete, this will not only complete a healthy portion of the work, but it will also inform what resources remain to be budgeted for other, discretionary, expenses.
5. Start with a manageable time frame.
Start with a one-year property management budget before undertaking longer-term projections. You will learn much in the process of creating and finalizing the first-year budget, and these insights will inform future years’ projections. If you tackle future years after completion of the first year, the work required to complete those future years will be less.
6. Document, document, document!
Finally, document your assumptions as you go while creating the commercial real estate budget. Keep supporting documentation and detailed supporting schedules in the budgeting software, the excel spreadsheet, or a document accessible to all who will work on the budget. Having clear and complete documentation will eliminate time spent trying to recall or recreate how a calculation or projection was derived when reviewing or explaining later.
Budget narratives are a key component of documentation and one of the most useful parts of a property budget report for anyone reading or analyzing the budget. This can spell out expected fee increases, seasonality, or operational needs that give rise to changes from the prior budget year as well as to monthly changes within the budgeted year. Lastly, they are helpful in understanding variances between actual and budgeted numbers as you progress through the year and analyze performance. Having your narratives housed in your property management software for easy reference and reporting is optimal.
7. If you get bogged down
One thing that we see sometimes slows managers down in completing a budget is a fear of getting it wrong. Keep in mind that the purpose of the budget is not to predict the future, but to prepare for it. The budget provides a benchmark so that, if circumstances change – and they almost certainly will – you have a tool to help make informed decisions about what to adjust. Make quality projections based on the best information you have, along with your knowledge and experience, and you’ll have a basis for informative reporting and sound decision making in commercial property management.
Post originally published in November 2023. Most recently updated in August 2025.