Is Your Rent to Revenue Ratio on Target?

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Better Metrics has been known to be the best way when making better decisions in Companies. Majority of companies in operation use a few basic metrics to compare office locations from a transnational stand point. The same process has been used in determining the performance of some operating properties in the real estate portfolio.

There are three measures used in decision making in Real Estate. These are;

  • Cost per square foot
  • Square feet per person
  • Occupancy cost per person

Rent to Revenue Ratio

A major tool that is currently widely used by many corporate real estate executives, as well as savvy service providers, is rent to revenue ratio. Majority of the operating industries, geographic regions and local economies have bench marked rent to revenue ratios. This simply means the percentage sales allocated to property that is ideal for your industry. Take for example Standard to revenue ratios. These can vary from as little as 2% in various industries while some can record as high as 15% for some professional organization like law firms.

Well, utilizing the rent to revenue ratio metric is an important move for many companies.Here is the logic behind the idea;

  • It helps companies make the right strategic decisions on the most viable level of investment for various locations.
  • If a given work space strategy just if iesthe higher expense linked with it, it is most likely that it will be evident in the increase in generation of revenues related to this decision.

Up to now, most companies have put more focus on projecting the cost estimates only when making decisions related to real estate specifically from a transnational standpoint. At times, companies make decisions without giving much consideration to the real estate components. In a vibrant, growing economy where majority of the companies are experiencing much growth in revenue, there is a tendency of a larger margin for error when occupancy costs are not aligned with the proper revenue levels. The implications of the decision may turns our if there is an adverse disruption in revenue.

Expenses as a percentage of revenue shave received more and more emphasis as most companies are putting a lot of concern in corporate real estate as a tool to gain more competitive advantage. In most cases, calculating rent to revenue ratios will help shift the spotlight above the occupancy costs and will act as a strong tool for making better decisions in real estate.

Well, the secret in determining the progress of a profitable company is well explained through rent to revenue ratio. This is to show that every company especially in the real estate field, should keep records of their revenues and make this process a priority to achieve the expected target.

Posted on November 23, 2015 in Blog

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