Lowering Rental Costs Through Data Analytics
McKinsey wrote an interesting blog about using AI and analytics to find cost-saving opportunities, and how a bank used rent analysis to reduce spend.
McKinsey wrote an interesting blog post about using AI and advanced analytics to find cost-saving opportunities (and risks): A new frontier for transforming nonpersonnel cost management in banking. Not a very exciting title, admittedly, but the content is excellent.
Their anecdote about real estate rent analysis is a great example of using data-driven insights to reduce spend. Indeed, any business with a significant portfolio of leased property could follow the same strategy to lower their costs of office, retail, warehouse, and similar space.
The strategy goes like this: First, gather data about the rents you’re paying across all facilities, including key lease terms like location, expiry date, etc. Next, gather current market rent data across micro-markets matched to the location of each facility. Finally, plot each facility using the difference between existing and market rents, and the total rental cost, with near-term expiries (1-2 years) highlighted for priority attention. Renegotiation efforts can now be focused on locations with large rents, large premiums to current market rates, and less than 2 years remaining. Properties with discounts to current market rents, on the other hand, can follow a quiet renewal strategy.
Fundamental to this analysis, of course, is data. This is one of many examples where contract analytics software like Catylex makes life so much easier. Rather than wading through hundreds of pages of leases, Catylex can automatically pull out all the vital data: what leases do we have, where is the property, what’s the current term, when does it expire, is there an option to renew, how many square feet do we have, what’s the base rent, and so on.
The McKinsey story was about a bank, but the same analysis could apply to retailers, professional services, or any other business with a significant lease portfolio. In fact, with so many businesses extending work-from-home beyond the pandemic, a similar analysis could be deployed to optimize office leasing more broadly. By understanding existing lease terms and market conditions, a data-driven strategy is likely to deliver maximum cost savings.