To understand your company's real estate portfolio, look between the macro portfolio-wide and micro building-by-building views. Considering the entire portfolio at once lets you communicate with your CFO and other senior management in the terms that they care about - what the real estate costs and how it performs. As you manage the portfolio on a day-to-day basis, you're deeply involved in the details of every building, its lease and its operations. Using CRE segmentation to split your portfolio into groups of similar assets lets you analyze what is happening and make strategic decisions.
CRE Segmentation Basics
CRE Segmentation is the process of grouping properties together on the basis of one factor, and looking at the group as a whole as well as individual properties relative to others in the group. Based on this better comparison, you can get a deeper understanding of your portfolio and what you have to do. Segmenting makes it simple to answer these questions:
How many leases are coming due in 2014?
Do locations in office buildings or retail centers perform better?
Are our warehouses in one region more cost-effective than our warehouses in a different region?
The way that you break up your portfolio will depend on your business and its needs. Here are a few common CRE segmentation methods that are usually helpful to most companies:
Segmenting by Location
Breaking your portfolio down by region or by market lets you see how each location performs relative to other similar ones. If you're doing an energy efficiency analysis, it's not particularly meaningful to compare natural gas utilization between San Diego and Minneapolis, but there may be some similarities between your Chicago and Detroit locations.
Locational segmenting also lets you compare different markets and regions. When you calculate a rent-to-sales ratio for each region, for example, you can tell at a glance which parts of the country provide the best return on your real estate investment.
Segmenting by Ownership
One CRE segmentation strategy that may seem obvious is to break your portfolio into owned and leased locations. This doesn't just answer whether buying or renting leads to lower costs, but it also gives you the opportunity to see how well purchased properties perform. You can see if the stability of owned locations benefits you, or if they're weak performers.
Segmenting by TimeSegmenting your portfolio on the basis of key lease dates can also help you determine strategy.
Lease expiration dates: Leases with expiration dates coming up soon should be prioritized for analysis, while those with far-off expiration dates may have enough time for you to renegotiate or sublease, in case they aren't meeting your needs.
Length of occupancy: The properties that you've been in the longest can be analyzed to make sure that you're in them because of their performance and not because of inertia.
CAM reconciliation dates: Knowing which leases get reconciled and when helps you plan your cash flow needs.
Segmenting by Type
Comparing cost of occupancy between office buildings and warehouses rarely makes sense. Like geographic segmenting, CRE segmentation by property type allows you to compare apples to apples, so that you can see which warehouses are the most cost efficient, or which offices let you pack the most employees in. If you're in a business that can occupy office or retail space, like a customer-focused financial services firm, you can also compare the performance of different types of space, guiding future site selection decisions.
Maximize Your Corporate Real Estate Portfolio
CRE segmentation is easier than ever to do, thanks to CRE portfolio software that creates segmented reports and lets you run custom queries. By splitting your properties up into meaningful groups, you can get a better understanding of how each of them operates and make better decisions about what to do with them. If you'd like to learn more about how segmentation can help you maximize your corporate real estate portfolio, contact us.
REoptimizer® was designed to help Directors of Corporate Real Estate