What is Commercial Real Estate Optimization and Why You Need It

Commercial_Real_Estate_Optimization_Why_You_Need_It

Commercial real estate optimization can be a broad discipline spanning both measurement and action. However, every aspect of the practice has the same benefit: helping your company get more revenue for each dollar that it spends on its portfolio. Here are some of the ways that you can work towards optimizing your portfolio.

Measure Utilization

One of the most basic principles of commercial real estate optimization is to ensure that the space you pay for is all space that you use. Empty cubicles and warehouses that are never filled are the epitome of an unoptimized portfolio.

However, suboptimal utilization can also be a little bit harder to spot. It can also come in the form of a location with a few empty cubes here and there or an office with too-wide hallways that can easily be reclaimed. These types of poorly configured or used spaces can be a large drain on your company's overall budget, and finding them is a little bit more challenging.

Typically, the best way to identify these type of underutilized spaces is to do the math. If you have workplace management software like REoptimizer®, it should be able to do this for you. If not, our REtools™ optimization calculators let you quickly calculate the usage rate of each of your spaces. You can then stack-rank, and identify which spaces have the lowest utilization rate.

Manage Costs and Invest Wisely

WMS tools like REoptimizer® are also powerful in their ability to help you understand what each of your spaces really cost to run. Being able to quickly compare and rank spaces on multiple metrics is a key to commercial real estate optimization. For instance, it probably doesn't matter that you spend more per square foot for natural gas in San Francisco than in Los Angeles, since the former has many more heating days.

If your janitorial costs per square foot in LA are twice your cost in SF, then you might need to investigate. After all, LA should have lower costs and lower wages due to a lower cost of living.

Doing these types of rankings help you understand where to invest. A facility with low energy utilization because it is in a highly efficient building is not likely to benefit from a major investment in a solar electric system as much as one that uses a great deal of electricity. These types of analysis let you apply commercial real estate optimization principles to capital expenditures as well as to managing operating expenses.

Negotiate Strategically

The commercial real estate optimization process starts before you even more into a space. To have a rent optimized portfolio, you need to know where the market lies and then attempt to negotiate down from that starting point. This requires market data. You also need an understanding of what your landlord needs -- and what he or she doesn't consider important.

For example, knowing that the market is at $20 per foot for a five-year lease gives you the opportunity to sign a seven-year lease and hopefully get $18 or $19 rents. On the other hand, if your landlord is purely focused on getting that $20 rent, you can negotiate for six months of free rent, and amortize those $10 in savings over the seven years for an effective rent of $18.57. A good broker can help you build a specific strategy for your desired property.

Commercial real estate optimization can require a great deal of data, study, and analysis. Having the right tools -- an expert tenant rep and a commercial lease adminstration system like REoptimizer® -- makes the process easier and more cost effective.