The corporate real estate world is undergoing its biggest transformation yet. New technologies and trends are changing the game right before our eyes.
So how are successful corporate real estate leaders keeping score?
By focusing on the right metrics.
Here are five important corporate real estate metrics every leader should have on their radar.
5 Corporate Real Estate Metrics That Matter
1. Capitalization Rate
The capitalization rate is the anticipated return on a real estate investment. Also referred to as “cap rate”, it’s based on the estimated income the property is expected to generate. Essentially, it’s what your annual return on investment would be if you paid for the property in cash.
Capitalization rate is calculated by dividing net operating income by current market value.
Knowing the capitalization rate of a property can help you determine if it’s a worthwhile investment. If you’re buying the property, you want a high capitalization rate; if you’re selling, you want the cap rate to be lower because it means the value of your property is higher.
2. Total Occupancy Costs
Corporate real estate leaders often underestimate total occupancy costs, which is an expensive mistake to make.
Total occupancy costs are the costs of renting the property, plus all other operating expenses. Other expenses that factor into total occupancy costs include:
- Maintenance and groundskeeping
- Property insurance
- General liability insurance
- Any amenities you provide tenants, like snacks and beverages
Having an accurate calculation of your total occupancy costs will give you a realistic picture of what you’re actually spending on the property so you can determine your return on investment.
3. Percentage of Revenue
For most organizations, real estate is the second-highest expense after the costs of employees. But how do you know if your real estate costs are reasonable in relation to everything else?
Calculate the percentage of revenue—the cost of your property in relation to everything else. You can do this by dividing your adjusted gross profit (AGP) by total occupancy costs (TOC) for each location. For instance, if you have an office with $500,000 in total occupancy costs and the adjusted gross profit for that location was $5 million, your real estate costs represented 10 percent.
4. Rent, Utilities and Employee Costs Per Square Foot
While the numbers above give you a good overview of your real estate costs and ROI, it can be difficult to know how you’re doing compared to other companies.
That’s where benchmarking data can help. According to JLL’s 3-30-300 rule, for every square foot of space, the average organization spends:
- $3 on utilities
- $30 on rent
- $300 on employees
While the actual numbers will vary, the ratios can give you a good indication of what you should be spending in each area. If you’re spending half as much on utilities as you are on rent, it might be time to invest in energy efficiency improvements like smart lighting and smart meters.
5. Space Utilization
The average organization has 30-50 percent more real estate than it needs, according to a recent Accenture report. And for every $100 million spent on real estate, most companies are spending an additional $40 million in operating costs. That adds up to a lot of wasted spending.
Space utilization is the measure of a building’s occupancy divided by its capacity. For instance, if you have the capacity for 300 people but only have 200 in the building at any given time, you have a space utilization rate of 67 percent.
Promoting flexible seating arrangements and encouraging employees to reserve space when they need it can go a long way to improve space utilization. That’s especially true if you have a number of employees who frequently work at home or only stop by the office on occasion.
Improving Corporate Real Estate Metrics
Having the right corporate real estate metrics at your fingertips helps you demonstrate ROI and justify future investments to your leadership team.
With our Insights module, you can:
- See a breakdown of space utilization by building and floor to identify underused spaces
- See the total costs of maintenance per building
- See which assets are nearing the end of their useful life
- Easily make adjustments to your real estate portfolio as needed
This makes it easier to plan for the future and right-size your space as your organization grows.
Want to learn more about how our Insights module can help you optimize your real estate portfolio? Watch a short demo.