Mastering Market Leadership: The Art of Real Estate Benchmarking
Unlock the Secrets to Outperforming Your Competition in Commercial Real Estate
In this week’s letter, I will break down how to set up the benchmarking system I have used to successfully position over 250,000 sq. m. of commercial real estate.
If you are developing or repositioning commercial real estate you should always start by benchmarking it against competing projects in the reference market of choice. Benchmarking lets you understand the key trends offered by competitors and helps avoid investing CAPEX in low-demand features. A well-positioned building will ensure it is financially successful.
Understanding benchmarks is essential for anyone involved in real estate, whether buying, selling, investing, or developing properties. They provide valuable insights into the market and help in making data-driven decisions.
Unfortunately, most organisations don’t perform rigorous benchmarking, because they often take for granted third-party advice without doing their research.
The Pitfalls of Single-Source Reliance
Blindly trusting a single source of information is a leading reason why many organisations fail to conduct thorough and impartial benchmarking research. Below are a few other reasons why organisations overlook the benchmarking development projects:
General lack of property development experience.
Believing that location is the only driver for sales value.
Being sold generic product definitions by their advisors.
Ignoring the differences between different sub-markets.
With a properly set up process, the process becomes straightforward and will become a very powerful tool to manage the delivery of projects.
Now, let’s dive in.
Identifying Your Market Competitors
Real Estate values can vary greatly between regions, districts and different neighbourhoods within the same city. This is why product positioning is fundamental to knowing how to best manage your CAPEX.
The basis for setting up a successful benchmarking tool is to identify 3 to 5 key competing schemes located within the project reference market. It’s important also to make sure to select only recent schemes up to a maximum of 5 years old. Any older than that and the information may no longer be relevant.
Every city has its sub-markets.
In London, an office building in the City of Westminster commands nearly double the rents compared to buildings in the City.
In Milan office buildings in the recently developed district of Porta Nuova rent double the amount of areas in the periphery. Areas in the periphery such as Assago typically attract occupiers seeking larger footprints, whilst closer to the centre occupiers may rent fractions of floors sized at around 500 sq.m.
Adhering to Standards: Local and Global Perspectives
Always ensure you include data referring to National/Local standards. These may not feel relevant at first, but this is usually information that prospective buyers/investors refer to when they run their Due Diligence.
If you are developing an office building in the UK you should always refer to the British Council for Offices Guide to Specification. Prospective occupiers looking for office space typically always do a check against this document. It doesn’t mean the building has to comply with it, but it should be used as a general reference to understand how your product is positioned against it. Some markets may expect strict compliance, and others may be less so.
Deciphering Competitors: A Deep Dive into Product Characteristics
Benchmarking can be as granular or as generic as required. As a minimum, it should include the following information for each competing scheme to provide a useful overview of the market:
Location.
Building Size and typology (Tall Building or not?)
Average Footprint size.
Average Cost per sqm.
Average Sales/Lease value per sqm.
Key technical characteristics (Structure, Building Services, Sustainability).
To gather the information, leverage the knowledge of your entire team. Try to fill in as many blanks as possible. Keep the data clean and properly organised so it can be easily filtered through.
This data should be used as a tool to keep all stakeholders on the same page and avoid making uninformed decisions about the product.
Crafting Your Competitive Edge: Essential Features for Success
Great! The most challenging work is done, and now the enjoyable part begins. Interpreting and analysing the data to define a compelling product.
Now, all the information described in the steps above should be in one place. This will enable you to establish a list of non-negotiable ‘Must have’ characteristics that the development should include to compete in the reference market.
This information will form the foundation to help prepare a competent Development Brief for the project.
Conclusion
Benchmarking in real estate development is not just about keeping pace with the market; it's about setting the pace. By meticulously gathering and analysing market data, developers can ensure their projects not only meet but exceed market standards, thereby attracting more investors, tenants, and ultimately, securing a more profitable position in the marketplace.
Remember, the goal of benchmarking is not to mirror the competition but to outshine it by understanding what makes your project uniquely valuable.
Here's a quick recap of the steps to benchmarking success:
Identify competing projects.
Reference national and international standards.
Extract key product characteristics.
Define essential 'Must Haves'.
Embrace these steps as your blueprint towards achieving unparalleled success in your real estate endeavours.
That's all for today.
See you next week.