Commercial Office Space Creates Profits
Over two decades I have made representing tenants in commercial real estate a major part of my professional life. I have always questioned the standard method of measuring the success of a commercial office lease transaction based on the rate-per-square-foot. If this was an accurate measurement, then all my professional service clients should have leased warehouse space in Commerce, CA at only $0.45 per square foot. Their rents would be cut by 75%, but likely the same percentage of staff would quit because of the poor working conditions. Yes, I am giving a dramatic example to make a point about the importance and value to you of the environmental and function aspects of the space occupied by your company.
We cannot eliminate the fact that companies require commercial office space in order to support their long-term business objectives and ultimately to make money. Success, in my eyes, requires an ongoing measurement of the value of square feet that contributes to a company’s profitability. Despite their rather savvy management, I notice that many businesspersons within companies and my industry have yet not made the connection between company net profits and their occupied space. We must look beyond the basic day-to-day functionality of our real estate to discover ways to use our facilities both to increase revenue and cut expenses.
With every few hundred square feet of space leased, we see a compounding effect to be considered on both operating expenses and capital expenses. This perspective validates the critical nature of evaluating occupied square feet in order to maintain and increase profitability.
The most successful companies view their real estate as a strategic as an asset of the company and understand the need for real estate performance measurements. That means looking beyond conventional real estate metrics. Real estate industry thinking has not evolved to create a measurement mechanism to understand how space serves the financial aspect of the company.
Rate-per-square-foot or employee-to-square-foot occupied alone does not take into consideration profitability. We cannot use a calculation of revenue-to-square feet, either, since it overlooks the expenses side of the equation. After much deliberation and years of confounding formulations, I have discovered that the best metric is to use square-feet-to-net-profit. I call this new benchmark the Space Profitability Quotient or, “SPQ.”
CLICK HERE to read the entire Chapter on SPQ and then you can request the entire 140 page digital book called, “Art of the Commercial Real Estate Deal.”
Disclosure: Content is general information only. Information is not provided as advice for a specific matter, nor does its publication on this website create any relationship between the writer and the reader. Neither this website nor Forrest Blake is giving commercial real estate advise or soliciting if you are currently represented by another commercial real estate broker, or legal or accounting advice on any subject. Please consult with your real estate broker, attorney or accountant regarding any of the concepts written on this website. This website, Forrest Blake or any of his affiliated companies will not be liable for any actions you take as a result of reading anything contained within.
Copyright 2013 – Forrest Blake
Please contact me if you would like to use any tenant representation or expert commercial real estate information contained on the site. I promise to get back to you within 24 hours if we don’t connect right away.
Forrest Blake
CA Real Estate License # 01054174
310-850-2381
fblake1000@gmail.com
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