Oct 10, 2014 8:41:00 AM

What is Commercial Real Estate Optimization?

By Don Catalano

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Commercial real estate optimization is the process by which the savviest businesses minimize their occupancy costs and increase the ROI on their owned and leased properties. While every company's needs vary, optimization is a multi-faceted process that includes both managing each sites' specific operations as well as looking at a portfolio as a whole to identify ways to lower costs.

1) Build Metrics

The first step in commercial real estate optimization is to look at your entire portfolio and build a set of metrics that allow you to analyze each property on its own and in comparison with the rest of your company's other locations. These metrics will require you to collect both lease abstract data as well as budgets, CAM reconciliations and other operating cost analyses. Usually, you will also want to look at business metrics like sales or headcount to let you calculate utilization rates.


2) Optimize Operations

Once you have created metrics, you can start to look at each space both on its own and in comparison to other sites in your portfolio. Some commercial real estate optimization tasks are straightforward. Subleasing out a vacant space that you have no intention of returning to is a relatively simple decision. Analyzing all of your retail spaces to find out which ones have the best sales per square foot and per dollar of rent and then deciding which of the weak spaces are necessities for marketing purposes is a more complicated process. However, these large scale decisions are where you can make a significant impact on your overall portfolio efficiency and your occupancy costs.


3) Optimize Costs

Once you've looked at big picture expenses, the next step in the commercial real estate optimization process is to look at operating expenses on a per-space and per square foot basis. You can save a lot of money by getting rid of unused locations, but you can also save a little bit of money by finding out which spaces have employees that leave the lights on or have owners that are charging unreasonable management or administrative fees. Because this process is extremely detail-oriented, the quality of the portfolio data that you can amass will directly impact its success. In other words, if you don't know what is normal for your portfolio, you won't be able to spot abnormal expenditures.


4) Benchmark to Market

Finally, even if everything seems to be going well with a given space, it could still be suboptimal. To really understand the economic efficiency of your portfolio, you have to look at it in comparison to the market as a whole. If the best space in your portfolio has $18 rent and $8 in expenses, but is located in a market where the norm is $16 and $7, you still have room to save money. Doing this, though, requires access to detailed market data to go along with your portfolio metrics.

Commercial real estate optimization isn't easy to do but it can be extremely lucrative. Traditionally, directors of real estate and CFO's have created their own processes to do this, typically involving reams of paper and elaborate spreadsheets. Workplace and facilities management software packages can help, but only one is designed from the ground up to be a commercial real estate optimization tool -- REoptimizer®. You can learn more about it at our website.


Want to learn more about Commercial Real Estate Optimization?  Click Here


Here are some other articles to check out:

Improve Your EBITDA with Real Estate Optimization

CRE Utilization Optimization and the C-Suite

What is CRE Optimization and Why You Need It

 

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Topics: commercial real estate optimization

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Don Catalano

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