Why Your Company Should Establish Real Estate Performance Measures Today

By Scott Henley

If your company leases or owns space, it may be time to consider establishing key performance indicators (KPIs), measurable values that demonstrate how effectively your portfolio is performing. Knowing these values, for instance, may help companies discover where they can improve operations or help assess the best locations for moves or acquisitions—often saving you substantial time and money. KPIs can also give you a more accurate picture of your real estate strategy and take the guesswork out of management.

Some KPIs commonly used in real estate include:

  • Cost per square foot
  • Market share growth
  • Occupancy costs
  • Revenue per square foot
  • Utilization (vacancy) rate
  • Operating cash flow
  • Debt-service coverage ratio
  • Cap rate
  • Discounted cash flow

Software company Archibus Inc. succinctly describes the benefits of KPIs in its white paper, Key Performance Indicators (KPIs) for Real Estate, Infrastructure, and Facilities Managers:

“The definition and implementation of a consistent set of KPIs that reflect a true statistical picture of an organization’s operations is an essential step in improving overall operational and financial performance. Having a capable, comprehensive real estate, infrastructure, and facilities management system to capture and analyze KPI information is paramount. Combined with the use of dashboards, balanced scorecards, and other means of visualizing information, KPIs supply the indispensable metrics and performance discipline that will save money, save time, and guide organizations of every type and size toward a more efficient and profitable future, year after year.”

KPIs in Corporate Real Estate

When it comes to corporate real estate management, KPIs generally cover measurements related to occupancy and employee costs; space efficiency; commercial real estate unit efficiency and quality; employee and internal client satisfaction; financial performance; and portfolio return. KPIs a company might consider are occupancy cost per employee, operational space versus non-operational space, employee satisfaction with the work environment, sales or revenues per square foot, and holding costs. (A full list can be found on page 7 of Measuring the Added Value of Corporate Real Estate Management.)

KPIs are an important part of Newmark Grubb Knight Frank’s global corporate services platform. For instance, when we transition a company’s real estate portfolio—which could be implementing new processes based on increasing business, centralizing functions to increase efficiency and profitability, leveraging procurement power to reduce costs, or improving service delivery and access to talent—our team first establishes a baseline for the partnership, as well as identifying benchmarks for measuring success. KPIs are reviewed as part of our ongoing improvement initiatives, ensuring changes to our client’s organization result in long-term benefits and a strong partnership into the future.

Identifying the Most Useful KPIs for Your Company

The most effective KPIs follow the widely used acronym S.M.A.R.T., which means you can answer these questions:

  • Specific: Does it have one widely accepted and clear definition?
  • Measureable: Can it be quantified?
  • Attainable (or Achievable): Is it actionable?
  • Relevant: Is it practical and measures a real and critical aspect of your organization’s strategy?
  • Timely: Can you measure the KPI on a monthly or quarterly basis?

An experienced corporate real estate advisor is essential in helping companies determining the best KPIs that will deliver the greatest results for your real estate portfolio. For more information about how you can grow your business through corporate real estate decisions, contact Scott Henley at 904-514-2883 or shenley@phoenixrealty.net.

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