For many corporate leaders, there's only one statistic that matters when it comes to corporate real estate - occupancy cost. Since real estate is (short-sightedly) viewed as a cost center, getting that overall cost down as low as possible is usually a major concern. However, corporate real estate professionals know that the factors that go into the overall occupancy cost can be more important than the total number. Ultimately, managing real estate cost isn't about spending less on space. It's about getting impactful spaces that maximize your company's expenditures. Breaking cost into its key constituents gives you the key performance metrics that really matter.
Cost per Square Foot
The most basic metric for looking at a corporate real estate portfolio is cost per square foot. While it's not useful for comparing spaces across different product types and markets, it can be a useful tool to identify an outlier among similar spaces. For example, warehouse space in rural Missouri won't be comparable to retail space in Manhattan, but if your company has non-contiguous space in eight Class A office buildings scattered throughout a given submarket, any space that deviates from the mean is probably worthy of a closer look.
When calculating costs, net rent isn't a meaningful metric. Landlords like to quote it because it's a more attractive number and because it can hide inefficiencies in a building. However, when you're analyzing your portfolio and its performance, your gross costs including rent, CAMs and taxes, are the occupancy cost metric that really matters.
Space/Cost per Employee
Looking at both the square footage per employee and space cost per employee gives you a better understanding of the efficiency of your corporate real estate portfolio. Space comparisons work across the country, letting you compare the efficiency of buildings in Lower Manhattan with counterparts in Las Vegas. The cost metrics are more prone to regional variation, but are still useful in comparing buildings that share the same geographic area or that are in similarly priced markets.
These metrics have two key things to teach you. The highly efficient buildings are models that you may want to use as you configure space moving forward. Your least efficient ones are probably ripe for closing, consolidation or, at a minimum, downsizing. Looking at them this way lets you optimize your corporate real estate portfolio and minimize your wasted occupancy cost dollars.
Sales per Square Foot
Traditionally used in retail settings, sales per square foot metrics help you compare locations in terms of their ability to directly affect your bottom line. However, this metric can be misleading by itself. To really understand the relationship of your space to your sales, you first have to adjust the space's dimensions to reflect the proportion that is related to actual selling. Otherwise, you may mistake an inefficient location for a weak one.
Rent to Sales
The ultimate occupancy cost measure is the overall rent-to-sales ratio. If your company is maintaining a ratio that is more efficient than its industry as a whole, paying high rents in a few locations may not be that important. On the other hand, a location that has a low price per square foot, high employee number per square foot and costs 6 percent of sales instead of 3 percent, is problematic regardless of how good other metrics might make it look.
Analyzing your company's occupancy cost metrics helps you to optimize your portfolio. It can also generate new projects as you reconfigure your holdings. A corporate real estate brokerage expert can help you find the right spaces at the right occupancy cost.
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