Sep 18, 2013

A Tenant's Guide to Measuring the Efficiency of a CRE Location

By Don Catalano


occupancy costs

Corporate real estate occupancy is usually one of a company's largest expense lines after labor and the cost of goods sold. With that understanding, it is important to analyze your portfolio in order to make better decisions.


Undergoing regular occupancy cost analysis surveys can help you determine which sites are worth keeping and which need to be moved and closed. Going deeper into the numbers can also help you identify best practices that you can use to optimize your entire portfolio's efficiency.


Thanks to advanced corporate real estate software, occupancy cost analysis has gotten much simpler. When you populate your software with information on all of your leases and locations, it can calculate multiple metrics on a per-property and portfolio-wide basis with a few mouse clicks.

Occupancy Cost Analysis Metrics

To do a comprehensive occupancy cost analysis, you'll have to analyze multiple metrics. Here are some of the ones that you can watch, and how you can use them: 

  • Cost per Square Foot: The cost per square foot metric is a useful metric when you're looking at multiple similar locations in the same area. Calculating it also gives you an opportunity to look at your total occupancy cost including CAMs and taxes, instead of just your net rent.


  • SF/Cost per Employee: Calculating your space's efficiency on both a physical basis and a dollar basis can be a useful way to see both how effectively you built your space and how efficiently you're using it. A space with a high employee capacity can become a model for future build outs. When you have spaces with high capacities, but few employees, they're probably too large and need to be downsized.


  • Occupancy Cost to Sales Ratio: Calculated by dividing your occupancy cost into your location's sales, this metric tells you how efficient a space is. Furthermore, since better locations should generate higher sales, it should be able to let you compare spaces across markets. Locations that have a low ratio are successful ones, while those that are above your company's norms need a closer look.

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Occupancy Cost Analysis Looking Forward

Once you've calculated your costs and identified locations that need further attention, you can prioritize the actions you take by adding up your future costs. Properties that have relatively low future costs because their leases are nearing expiration can be easily renegotiated.


On the other hand, those that have the highest future cost may call for you to talk with the owner about buying out the lease. Net present value and net present cost calculations, which your software can also perform for you, can help you identify if it makes sense to buy out a lease and move or if your company has to stay with its space until it can find a subtenant


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Don Catalano

Don Catalano