For many companies, their commercial real estate represents one of their largest expenditures. While businesses have spent decades optimizing their labor forces to minimize costs, and manufacturers constantly find ways to make products with similar quality and functionality at lower cost by changing parts lists and manufacturing processes, many companies look at their real estate as a sunk cost. By carefully assessing your commercial real estate portfolio, you can avoid falling into this trap.
Assessing your portfolio starts with determining which sites you are using properly and which you are not. Identifying sites which are largely empty, and likely to remain as such, are prime candidates for cost cutting. You can then decide which sites should be closed and which should be moved to smaller spaces when their leases expire or when their landlords will allow an early termination of the lease.
After you have trimmed the fat from your overall commercial real estate portfolio, focus on each site's operations. Assess what you are spending on operating costs to find room for savings whether through vendor renegotiations or having landlords adjust CAMs. Comparing each site to every other one helps you establish both a per-site and per-square-foot benchmark. Note: Remember to compensate for regional differences in pricing.
Once you have optimized each site's operating expenses, focus on the rent that you are paying. It is usually relatively easy to find comparable space at comparable or lower pricing today. This creates an excellent negotiating opportunity for the tenant who either wants to get a rent reduction from their landlord or to move to new space. In today's market, you may even be able to renegotiate your lease downwards even if it has a number of years remaining by offering to extend your lease term.
Optimizing your commercial real estate portfolio is an extremely profitable activity, even though it is a lot of work. While brokers and corporate real estate advisors can help many companies, others choose to do their optimization in house. Thanks to commercial real estate software that is now available, this task is becoming much easier than in the past.
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