The value of your company's corporate real estate portfolio can be identified in five ways. While there are many soft standards that you can apply to judge your company's collection of locations, it's hard to quantify how much your employees like a space or exactly how much a space contributes to your brand image.You can, however, easily quantify the manageability of the portfolio, how each space performs relative to other spaces and your industry, and the flexibility of your portfolio. Here are five qualities of an outstanding CRE portfolio.
1. Occupancy Cost at or Below Market Average
If your company is large enough to have a CRE portfolio instead of a space or two, you should be able to negotiate competitive rents in any market you enter. As such, your total occupancy costs - rent plus CAMs - should be at or below the average for your market and your type of space. Maintaining an average or lower rent level while also holding sufficient spaces means that you've done a good job of negotiating for competitive pricing.
Learn more about REoptimizer®'s Benchmark to Market functionality
2. Staggered Rollovers
Given that renegotiating leases and potentially moving spaces can require a significant investment of labor, the rate at which lease renewals occur is part of setting up a successfully managed CRE portfolio. If you've configured your leases so that they all change at different times, you're able to maintain a steady workflow for your corporate real estate department, maximizing its efficiency. Staggered lease rollovers also give you the ability to constantly evolve your portfolio as you seek better performance.
A CRE portfolio with staggered rollover dates = a less stressed real estate department that can make crucial decisions successfully without being rushed
3. Uniformly Superior Metrics
When it comes to measuring how your real estate is impacting your business' bottom line, a CRE portfolio should be uniformly superior. The best portfolios perform at an optimized level at every location.
For example, the rent-to-sales ratio is a common metric in retail businesses. If an industry targets a 3 percent rent to sales ratio, and your company comes in at 2.5 percent, it's a positive indicator. Getting there with all of your stores between 2.25 percent and 2.75 percent is an even better sign. Having locations that are pulling 4 or 5 percent ratios, on the other hand, is a sign of a non-optimized portfolio.
4. Time and Space Options
The problem with leased space in a CRE portfolio is that you can't truly be in the driver's seat. When landlords decide whether or not to re-lease to you, what to charge you, and if you can rent adjacent spaces, you're at their mercy. Strategically designed portfolios contain multiple renewal options and rights of first refusal or first negotiation on adjacent spaces. This lets you decide whether or not to stay and gives you a chance to lease expansion space before another company gets control of it.
When you have market intelligence and lease terms with multiple options, you can open up your CRE portfolio to more opportunities.
5. Low Space Turnover
Ultimately, the best determinant of a successful CRE portfolio is how long your business stays in its existing spaces. While some turnover is a natural part of doing business, few businesses constantly replace existing spaces. If you're able to find spaces that work for you and stay in them through multiple renewals while still meeting all financial goals, you'll enjoy greater continuity in your business and lower management and occupancy costs.
A great CRE portfolio doesn't come about through luck or happenstance. Most come from careful planning and good strategy. Having expert, outside help from a skilled tenant representative gives you both perspective and market intelligence that you can use to build the perfect CRE portfolio.
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