How can you use total cost of occupancy (TCO) to accurately measure your real estate portfolio costs?

1 What is TCO?

TCO is the sum of all the costs that a tenant or owner pays to occupy a space over a given period of time. It includes both the fixed and variable costs, such as rent, utilities, maintenance, taxes, insurance, furniture, equipment, and services. TCO can be calculated on a per square foot, per employee, or per unit basis, depending on the purpose and scope of the analysis. TCO can also be expressed as a percentage of revenue or profit, to show the impact of real estate costs on the business performance.

2 Why does TCO matter?

TCO matters because it provides a comprehensive and consistent way to compare the costs of different real estate options and scenarios. By using TCO, you can evaluate the trade-offs between leasing and owning, between short-term and long-term contracts, between central and peripheral locations, and between different space configurations and quality levels. TCO can also help you identify the hidden or overlooked costs that may affect your occupancy decisions, such as relocation, renovation, downtime, or opportunity costs. TCO can also help you benchmark your costs against industry standards and best practices, and monitor your cost trends over time.

3 How can you use TCO to measure your portfolio costs?

To use TCO to measure your portfolio costs, you need to follow a few steps. First, you need to define the scope and purpose of your analysis, and select the relevant cost categories and components. Second, you need to collect and validate the data from various sources, such as lease agreements, invoices, budgets, and reports. Third, you need to calculate the TCO for each space or property in your portfolio, using a consistent formula and methodology. Fourth, you need to analyze and compare the results, and identify the cost drivers and opportunities for optimization. Fifth, you need to communicate and report your findings and recommendations to the stakeholders and decision-makers.

4 What are the benefits of using TCO?

Using TCO can bring many benefits to your CRE portfolio management, such as optimizing space utilization and allocation, negotiating better lease terms and conditions, planning and budgeting more effectively, improving operational efficiency and sustainability, and aligning your real estate strategy with your business goals. TCO can show you how much space you need and how much it costs per employee or unit, the true value and impact of rent escalations, incentives, clauses, and options, the expected and actual costs over the life cycle of your occupancy, potential savings from reducing energy, water, and waste consumption, and how your costs affect your revenue and profit. Additionally, it can help you leverage your space to enhance your brand, culture, and productivity.

5 What are the challenges of using TCO?

Using TCO can also pose some challenges to your CRE portfolio management. Collecting and analyzing a large amount of data from various sources and systems can be time-consuming and complex. Additionally, the assumptions, definitions, and methods used by different analysts and organizations can make TCO subjective and inconsistent. Furthermore, TCO may not capture qualitative and intangible factors such as location, accessibility, amenities, design, or flexibility which can lead to misleading or incomplete results. Lastly, TCO can be dynamic and uncertain due to market fluctuations, business changes, or unexpected events.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?