Measuring a property portfolio’s impact on a business’ bottom line has never been an exact science.
The closest many businesses come is by measuring total occupancy cost (TOC). It’s a time-tested metric, but one that focuses exclusively on expense, not value contribution.
“There’s a flipside to this, which is about real estate adding value to your business,” says Richard Brown, JLL’s head of Business Intelligence in the U.S. “Looking only at cost is the old way of doing things. Big data can help quantify real estate in a more sophisticated way.”
More than just an expense
Thinking of a real estate portfolio not merely as a set of expenses, but as an asset that adds value is the only way to truly understand property’s role in the business — and to make good decisions about real estate. “To understand cost, you need an accurate picture of value to weigh it against,” Brown says.
Sometimes this can be fairly straightforward. A retail location that’s close to core customers, or on a highly trafficked corner, for example, obviously has a direct correlation to revenue. Quantifying value gets a little trickier with office space, which may not be a direct driver of sales, but can offer enormous business impacts through its relation to things like recruiting and retention, productivity and innovation.
Quantifying those hard-to-grasp contributions is where data and analytics can help. The process begins with knowing what the business expects to get out of its real estate, then assessing its effectiveness in achieving those goals against the cost. This is how Brown advises his clients.
“Often we’ll ask them to give us a scoring of their real estate, requesting a 1-10 performance score,” he says. “Then you match that against total occupancy cost, and it really starts to give you a metric that shows where your real estate is adding value.”
It may seem obvious that a company’s location is a big factor in attracting and retaining talent. That is, after all, often the primary consideration when choosing space these days. But, understanding where the talented workers are and how they want to work is only the beginning.
Big data, critical nuances
It’s important to view each property in the context of its competitive environment. “How do your facilities and locations compare to the competitors for those skills in your market?” asks Brown. Market and demographic data will help companies stay competitive as they search for talent, and a workspace that creates an effective working culture will help companies retain the talent they do hire. Google’s hiring dominance in its early days was driven in part by the pioneering way it used spaces to create an innovative — and competitive — culture.
“For these we need to bring in other data points beyond cost,” says Brown. “Employee and customer feedback, retention rates and time-to-hire measures will give you a view on effectiveness of your strategy.”
It may seem like an overwhelming amount of data, but that’s where using a sophisticated data and analytics platform comes into play. While corporate real estate was once run using simple spreadsheets or regional dashboards, new systems now enable real estate executives to cross reference data from across the portfolio, from other parts of the company and from external sources to predict real estate needs, value and contributions.
“Data scientists and analytics platforms for corporate real estate like JLL’s RED platform, can use predictive modeling to quantify and improve the value of a company’s real estate,” observes Brown. “Data is a powerful force to wield, whether it’s for a portfolio of 10 properties—or 10,000.”
Advancing measurements, from cost to value
To fully understand a property or a full portfolio’s value, each of these many data points is crucial – not just occupancy cost.
“Bringing this all together, overlaying some of these other metrics onto TOC, starts to provide real insight into your portfolio,” says Brown. “Looking at the correlation between TOC and staff retention and employee satisfaction, it is this type of analysis that enables not only the right long-term strategy, but also the tactical ongoing adjustment that drives continuous improvement.
“We are beginning to see our clients turn their corporate real estate function from pure cost centers into an asset to improve and drive business performance.”