Performance management in corporate real estate has matured rapidly over the last ten years due primarily to the evolution of sophisticated real estate management systems. With the advent of integrated workplace management systems(IWMS), and now cloud based point systems (like Visual Lease), CRE organizations have a wide range of options in the type and utility of portfolio management systems. A key feature of these systems is the ability to customize performance management to fit the specific needs of the organization. For example, some organizations prefer to have the performance measures be “role based.” Here, the system provides different metrics that are specific to different roles in the CRE organization: leasing specialists, project managers, maintenance managers, etc.
Here are my top performance metrics that are generally applicable for most corporate real estate portfolios:
· Cost per square foot. Perhaps the most general performance metric of a corporate real estate portfolio is the unit cost per square foot. This would reflect the annual total cost of the portfolio. Separate costs for leased facilities and owned properties are usually presented. For owned properties, I recommendestablishing market values to assess marketability. These assessments can usually be completed by your real estate advisors, on a periodic basis.
· Square foot per employee: This will reflect the efficiency of the office portfolio on an annual basis. For organizations that have adopted shared office techniques like office hoteling, the ratio should be lower than for traditional 1:1 (workstation per employee) utilization.
· Leasing Churn: This metric reflects the percentage of leases renewed, retired, or extended on an annual basis. The higher the churn rate, the less efficient the portfolio. Ideally, CRE managers prefer to stabilize the portfolio with selective options, or longer lease terms. Lease term should now be considered in the context of the new FASB standard which puts the net present value of all leases of more than 1 year on the balance sheet as assets and corresponding liabilities. (beginning in early 2018) The longer the lease, the higher the values, so tradeoffs between stability and churn will have to be made.
· Escalations as a percentage of total annual rental: This metric will reveal whether a specific lease is abnormally costly as a result of excessive CAM or other charges. It will flag the lease for a potential audit to determine if there are over-charges from the landlord. One possibility is the landlord is erroneously including capital expenditures in the CAM calculation which would greatly inflate the cost.
· Employee satisfaction with the work environment: Consistent with the use of the “balanced score card,” CRE managers should survey representatives from the employee base on their satisfaction with the work environment. Normally, surveys are conducted bi-annually, on representative facilities. The degree of satisfaction will provide insight on office standards, décor, and services. In my own experience, these surveys combined with cost and utilization metrics cited above, give useful perspectives on prioritizing leasing actions.
· Sustainability: Portfolio performance metrics would be incomplete without measuring the environmental quality of the portfolio. Here attention should be paid to the energy efficiency, carbon footprint, or other indicators that reflect the environmental quality of the portfolio. Many corporations today place significant emphasis on sustainability; so it’s wise to include some rating system in the portfolio performance dash board.
Conclusion: Performance metrics give the CRE manager and his team the necessary indicators on how the portfolio is performing on a cost, utilization, environmental ,and customer (employee) satisfaction basis. These metrics should be readily available from the Lease Management system amplified with survey and environmental data, and customized to meet the priorities of the organization. The old adage, “You can’t manage what you can’t measure,” certainly applies to real estate portfolio management.