Managing a successful commercial real estate (CRE) property is a juggling act. A commercial property manager needs to balance asset maintenance, service vendor relationships, demanding higher-ups, and tenants with rising expectations.
With so much in the air, it can be difficult to take a macroscopic view of your building and see what is or isn’t working. That’s why choosing the right key performance indicators (KPIs) is critical.
Setting relevant, concrete performance metrics shows property management teams—and executive leadership—if expenses are in line. KPIs show where improvements can be made and can help you decide when to abandon certain initiatives, for example, like under-performing building amenities.
Clearly defined KPIs with measurable and comparable metrics provide a yellow brick road to optimizing business outcomes and profitability.
Basic guidelines for setting KPIs
Given the abundance of data now available to property teams, it can be daunting to decide what to focus on. Some property teams become excited by the possibilities of what they can measure and end up losing sight of what they should measure.
There simply isn’t time to regularly look at 20 different KPIs and make actionable decisions based on each one. Instead, focus on measuring select core KPIs.
To determine which ones, start by clearly identifying your organization’s corporate goals. Then you can map these to correlating metrics that will help attain these objectives.
Remember: Choosing KPIs shouldn’t be a one and done process. Your organization’s goals can change every year. Whichever KPIs you select, review them at least annually to ensure they still match current company goals.
Perhaps most importantly, all KPIs should be S.M.A.R.T.: Specific, Measurable, Attainable, Realistic, and Time-based.
When selecting your KPIs, start in the following areas:
1. Net operating income
Financial KPIs measure a property’s fiscal health, revenue, profit growth, and performance relative to revenue targets. It’s important to monitor indicators like maintenance and repair expenses, amenity utilization, and more to keep bottom lines healthy. But, the most meaningful number for commercial property managers is Net Operating Income (NOI).
(Total Income) – (Operating Expenses) = (Net Operating Income)
To calculate this number, take all income sources and expenses into account, from heavy hitters like rent to smaller amounts like parking passes.
When presenting this information to higher-ups, every commercial property manager should be prepared to explain notable variances between actual numbers and the forecast, budget, and benchmark numbers.
2. Occupancy and vacancy rates
A commercial property manager should know the occupancy and vacancy rates of their building at any given time. However, monitoring occupancy rates is most useful if you can compare your numbers with the market average.
Pre-pandemic, office vacancy rates hovered somewhere between 9-10 percent. Now, United States office vacancy rates perch at 16 percent.
Beating the market average is a good sign. Leaving it in the dust might indicate your rents are too low.
3. Tenant turnover
Tenant turnover is costly, particularly in the current environment of market uncertainty. When analyzing tenant turnover, measure the following:
- Lease renewal rate: Most property teams consider a 70 percent lease renewal rate a good baseline. Measure your renewal rates relative to prior years and this baseline to monitor building health.
- Tenant turnover time: Tenants leaving your property are inevitable. Long, costly vacancies aren’t. Property teams do everything in their power to keep tenant turnover time short but should use vacancies to their advantage. Vacancies are an opportunity to make necessary unit repairs and upgrades without inconveniencing tenants. Seize the occasion to make a space more appealing to tenants and increase a unit’s future revenue potential.
- Tenant acquisition cost: Considering the marketing, administrative, and tenant improvement efforts that accompany leasing, finding a new tenant can cost up to three times as much as renewing an existing lease. If you find this cost is creeping up while tenant turnover time remains static, consider alternative methods of marketing the space.
4. Certificate of insurance compliance
To shield your property from risk, your team needs to track tenant and vendor Certificates of Insurance (COIs). Failure to do so leaves your organization vulnerable to steep non-compliance insurance penalties and costly claims.
According to Building Engines internal experts, a compliance rating lower than the high 90’s is unacceptable.
5. Work order efficiency
Of all the tasks your team completes each day, work orders have the biggest direct impact on tenant satisfaction. To make this process more efficient, measure the following:
- Speed of work order completion: Measure the average time to work order completion, along with the percentage of work orders completed by their due date. To ensure satisfied tenants, your target baseline should be to complete 90 percent of work orders on or before the due date.
- How work orders are received: A self-service portal is more efficient than making tenants call or emailing your office to submit work order requests. Measure the ratio of tenant-submitted work orders on your tenant app versus those scheduled by tenants contacting your office. With this information in mind, consider if your team should do more to encourage portal use.
- Tenant satisfaction with work orders: Request tenant feedback on completed work orders to identify service bottlenecks. This can be done by contacting tenants manually or using tech tools that send automated feedback requests, such as Prism Work Orders by Building Engines.
- Engineering productivity: Your maintenance teams should account for an eight-hour workday. To measure their productivity, track the number of work orders or tasks each team member completes, including administrative time spent recording tasks. If engineers are spending a sizable chunk of time on administrative work, consider technology tools that increase engineer productivity.
Stop juggling, start measuring
While no two properties are the same, there are baseline metrics that help you understand if your building operations are optimized for success.
The right KPIs provide an accurate view of your building’s performance, and by reflection, your performance as a commercial property manager.
However, if you want to take your property from good to great, you’ll want to start tracking next-level KPIs. Download our guide, “Metrics that matter for modern property management,” for seven modern metrics that will unleash the hidden value of your buildings.
