Occupancy costs: a method for their estimation

Abstract

PurposeToday the costs of real estate are the second or third largest cost factor in most companies. The planning of so‐called occupancy costs, therefore, plays a particularly important role. Cost models that permit a forecast of these costs serve to assist in such planning. The objective of this study is to support occupancy cost planning and benchmarking.Design/methodology/approachTwo regression models are presented. They permit a forecast of total occupancy costs as well as the subset of these costs that is recognized in the profit and loss account. Both models are based on 70 Swiss owner‐operated office buildings.FindingsThe forecast accuracy with mean absolute percentage errors (MAPEs) of 10 and 11 percent can be classified as good. The quality of the cost models is further tested on the basis of ten additional properties that were not used for building the models. The forecast accuracies again prove to be comparatively high (absolute percentage errors from 2 to 18 percent and from 0.2 to 25 percent).Research limitations/implicationsIn order to be able to improve the quality of forecasting occupancy costs, future studies should focus especially on the strategic dimension of real estate management (e.g. maintenance and outsourcing strategies).Originality/valueThe proposed concept and the cost model forms the starting point for further studies.