Magazine article Journal of Property Management

The Evolution of Benchmarking

Magazine article Journal of Property Management

The Evolution of Benchmarking

Article excerpt

Benchmarking is one of the latest industry buzzwords, but what does it really mean and how can real estate professionals truly benefit from its application? Helen Arnold, managing director of the Advisory Services Group of Cushman & Wakefield, shares some recent ideas on this important subject.

JPM: How is benchmarking being applied in the real estate business?

Arnold: Benchmarking is really in a state of evolution today. Early benchmarking was essentially cost comparison. Owners and managers used figures such as costs per square foot and cost per employee to compare the efficiency of real estate operations. Such comparisons really proved to be inadequate to managing a portfolio because they did not take enough factors into consideration. For example, what is the age of the building, what is it used for, what types of tenants does it have? All of these answer influence operating costs.

Benchmarking in order to identify better means of cost reduction has achieved a considerable level of sophistication today So much so, in fact, that some companies are looking to see if they have been too draconian.

They are asking whether or not it is possible to reduce operating costs too far. Larry Borsinger, a corporate financial analyst at IBM, has been using regression analysis to quantify the point at which reducing real estate costs in a business unit actually starts to reduce productivity instead of increasing it. This is IS similar to the process that occurs in the world of real estate in which it is possible to reduce operating costs to a point at which the value of the building is actually reduced. …

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