Commercial real estate does not exist in a vacuum. Wise property manager and corporate real estate executives know that measuring their real estate portfolio's performance against the market as a whole can bring important insights.
Is 75 cents a square foot for janitorial services a reasonable price? Should rent go up one dollar per year? Is it reasonable to pay a pro-rata share of the installation cost of a new roof for a 100,000 square foot building that you will be moving out of in three years? Are you sure?
Going through a process of comparing your leases to those that are prevalent in your market can make you sure of the answers to all of the above questions and more. While many executives benchmark within their portfolios, comparing a 40,000 square foot distribution space in suburban Des Moines to one in Clearwater, Florida ends up offering little value since market conditions are so different.
Benchmarking within a market is challenging since owners typically hold information about the operating costs of their buildings very closely. Companies with strong brokerage relationships can lean on brokers and advisers to use their market knowledge for benchmarking. Alternately, software packages that have benchmarking tools built-in. These tools compare properties to existing market norms to help you understand where you sit. This saves you a great deal of research time and helps you make informed decisions about your commercial real estate portfolio.
Most business leaders strive to know as much about their business, their market and their competition as possible. This knowledge helps them control costs and drive EBITDA upwards. Whether you collect benchmarking information yourself, use the brokerage community to help you, or let a software package's intelligence generate comparisons, you can gain the same level of knowledge about your commercial real estate. Given the large sums that your company likely spends on its real estate, the savings that it can realize as a result of this process are potentially quite large.
