Whether you are a property owner, an experienced executive in a high-ranking company, or a business enthusiast looking to start their own enterprise, understanding corporate real estate metrics is a must. Even if not directly involved in real estate, every business will eventually need to buy, lease, or operate commercial space. Consider this article a shortcut to understanding the real estate KPIs that are more valuable by the minute, given the changing economic landscape.
Key corporate real estate KPIs for business impact
KPI stands for key performance indicator. In real estate, KPIs help you measure and assess your performance—meaning, how effective and profitable your handling of said real estate is. A property owner will first look at metrics such as financial efficiency, while a lessee might be interested in occupational efficiency before anything else. And while these are obvious examples, some of the KPIs that impact business the most take a little more research. Understanding them will help you not only measure your success but develop strategies that support your long-term goals. So, without further ado, let’s explore them.
Total Occupancy Cost
This metric refers to all the expenses associated with operating, as well as owning or leasing corporate real estate. Depending on the company, the total occupancy cost may include things like rent or property taxes, insurance, management, and utilities. Basically, it covers everything down to the cleaning services, coffee supply, and the occasional office snacks.
Calculating, analyzing, and understanding your total occupancy cost will first and foremost give you an idea about whether these expenses are sustainable. Maybe your company used to have all its employees in the office every day of the week, but currently employs a hybrid model where only one of two floors is ever full. In this scenario, subleasing or subletting an office floor would help you save money. On the other hand, you may realize you are operating in too small a space for your growing company and that changing or adding locations to the portfolio would prove beneficial in the long term.
Percentage of Revenue
Tying in with the total occupancy cost, the percentage of revenue shows you how expensive each of your locations is. While it’s common sense that real estate is a huge investment for any company, knowing exactly how huge is paramount in understating the efficacy of your financial strategy. You want to know how much it costs to operate, manage, as well as own or lease each space, and luckily, the formula is quite simple: you must divide your adjusted gross profit (AGP) by total occupancy costs (TOC) for each location.
To give you an example, say your AGP is $1,000,000, while the TOC for the office you’re leasing is $200,000. When dividing the adjusted gross profit by the total occupancy costs, you get 5, meaning that the asset amounts to 5% of your company’s profit. If that sounds ideal, that’s because it is. You may not get such clean numbers, and depending on how many offices or facilities you have, the calculations might take longer or get more complicated. However, finding out your percentage of revenue is essential in evaluating your business’ success.
Occupancy Rate
Occupancy rate is a ratio indicating how much of your available space is occupied at a given time. In other words, it tells you how close the office gets to its full capacity.
As you can imagine, this metric is hugely important for companies that implement hybrid work models, which are increasingly popular in commercial real estate. For example, if your company brings in different teams on different days of the week, your occupancy rate will change daily, but stay coherent from one week to the next. On the other hand, your employees may have the option to only pop into the office when and if they want to—a scenario which makes your occupancy rate less predictable.
Space Utilization Rate
You know how much real estate you’re working with, as well as how many people are on site on a given day—but how about the functionality of it, the inner workings of your space? That’s where space utilization rate comes in.
Space utilization is different from business to business, and the rate, even more so. Often, desk and office space are underutilized, but the opposite might occur. If you have ten employees in the office, two of whom have regular meetings where they need conference rooms, it’s safe to assume having one such room would be enough. However, by tracking the usage of the space, you might realize a third employee could need it when it’s not available, so they may end up using an inappropriate amenity such as the kitchen. In a different scenario, multiple meetings could happen at the same time, once again putting your employees and clients alike in a tough position.
There is no formula-like shortcut to identifying space utilization rates, but what you can do is look at occupancy sensors (software or electrical fixtures such as wall switches and ceiling mounts). You might need to implement them first, and if you’re wondering if it’s worth it, it is. Being able to measure this KPI helps you see the strengths and weaknesses in your office or facility, thus showing you future directions of investment (or even saving money) when it comes to real estate.
Space Utilization Patterns
Just like space utilization rate, space utilization patterns point out the way an office or facility is used, but with the added benefit of indicating regularities. Naturally, this metric implies daily or weekly observations and can greatly assist you in identifying unexpected real estate needs. Like in the previous example, you might discover that one conference room is simply not enough, or that you should opt for a space with multiple, albeit smaller meeting rooms. If we’re talking industrial spaces such as a factory, looking at space utilization patterns could make all the difference, especially when it comes to safety.
Peak Space Utilization Rate
Consider peak space utilization rate the ultimate indicator of how operationally effective your space is. As you would expect, this metric helps you understand how well your current office works at full capacity. To give you just a simple example, once all your employees are on site, you might realize that you have several empty desks you could repurpose.
Like the space utilization rate, this KPI is measured through sensors, which is yet another reason to check out various options and implement the ones that work best for you. An investment like this will prove very profitable in the long run.
Comparative Utilization Rates
Essential for companies who operate across multiple locations, comparative utilization rates tell you which of said assets perform the best. You could compare occupancy rates, as well as look at how employees work and feel. Similarly, you could focus on a certain type of amenity or equipment and see whether it’s as useful in one office as it is in the other. This is all valuable data as it can inform the most important decisions in your real estate strategies.
Conclusion
This is by no means an exhaustive list of property metrics, but it covers the ones that can take you from theory to practice. You might have a general idea of how functional, efficient, and cost-effective your assets are, but it is only through measurements and data that you’ll know for sure—and you might even be surprised at the results.
It’s important to also point out that thanks to the flexible work models growing in popularity, commercial real estate is changing, too. After all, hybrid work arrangements are here to stay and you (and your space, for that matter) should be ready to adapt to it. If you’re not sure where to start, we suggest implementing a tool such as WeWork Workplace, which can help you with everything from bookings and schedules to tracking some of the real estate KPIs that will pave your way to success. Speaking of which, if you’d like to learn from someone who knows quite a few things about long-term success, be sure to check out this article next.
