Are $6 per square foot operating expenses reasonable? How about 20? As with many corporate real estate questions, the answer depends on many factors, starting with what they're being benchmarked against. Depending on the type of benchmarks you need to set, you can tap into different data sources -- both internal and external -- to help you figure out whether or not your operating expenses are reasonable for your particular market conditions.
Benchmarking to Budget
The most basic way to benchmark your expenses is to compare them to your budget. Most landlords give you a budget at the beginning of the year and either do, or can, provide you with monthly statements that show you how much you've spent in CAMs, how much they've paid in expenses, and how the actual expenses correspond to the budget.
Simply comparing expenses to a monthly budget isn't always as easy as dividing annual payments by 12, though. Many budget lines fluctuate by month. While an elevator maintenance contract is likely to cost a set amount, snow removal services will vary. This means that while you might think that you're overpaying in June, you'll end up swallowing up that overage in December. As such, you will want to seasonally adjust certain operating expense lines.
Benchmarking to Portfolio
If your organization has invested in a corporate real estate software package, it should be able to benchmark all of your sites against each other. Whether you get a comparison of your expenses relative to the average or a ranked list, either one can be useful in identifying which sites are expensive and which aren't.
It's easy to read too much into this report, though. Benchmarking in a portfolio is best done against highly similar sites. A warehouse in temperate Portland is going have lower operating expenses than a Class A office in Chicago. However, if your call center in Lenexa, KS has significantly higher expenses than another call center right across I-35 in roughly similar Overland Park, it's worthy of investigation.
Benchmarking to Market
Finding the data to compare your operating expenses to those in the market is more challenging. One way to do it is to license third party data, which is typically expensive and not always reliable. Another option is to have it integrated into your commercial real estate management software. With market data, you can place a check on your landlord to ensure that he is properly operating your building. If he isn't, you'll have the information that you need to make good decisions about either making capital expenditures for OpEx savings or moving when your lease is ready to roll over.
Benchmarking to Reality
All the data in the world can't always tell you what is actually happening in the areas around the buildings that you occupy. If there is a short-term labor shortage, labor costs for repairs and maintenance could spike. It might not show up in backward-looking market data and it will appear to be a problem in benchmarks calculated against your budget or against your portfolio. However, it isn't a sign of landlord misdoing. It's just a market reality.
The best way to understand what is really going on in the market is to get your information from a market expert. This is why most highly successful companies work with experienced and knowledgeable third-party tenant representatives. The brokers that represent them spend their time in the market, paying attention to construction, rents and operating expenses. This lets them report back to you with real-time information about what is actually happening in the market so that you can make better decisions.
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