The real estate market and changing property values are always in the headlines these days, but what do the costs mean to a company that's considering relocating?
They're important, but not until you've addressed other critical issues, says David Houston, president of Colliers Houston & Co., a commercial real estate consulting firm. After you've found potential locations that meet your company's needs in terms of labor, transportation, customer access, availability of raw materials and other issues critical to your operation, it's time to start looking for the best real estate deal. "Keep focused on the important parts of your business plan, and make certain that the real estate is suitable to support that strategy," says Houston.
Robert S. Ageloff, managing principal with The Staubach Company, a commercial real estate advisory firm, agrees. He says that in the beginning of the process, he works to understand the company's financial drivers and operational objectives, then develops multiple real estate scenarios that will enable the company to meet its goals. "We'll look at six or eight regions or metropolitan areas, and then we'll drill down into actual specific properties," he says.
Once you've decided on the general area or areas that will work best for your company, it's time to start looking at potential sites. Houston notes that you may still need to analyze submarkets within an area. Do you need to be downtown, in the suburbs or in a commercial/industrial area? If you need to be downtown, it doesn't matter that a suburban location will cost less; at that point, your goal is to find the best downtown deal. In addition to the actual location, you'll need to consider the availability and cost of any specialized facilities your operation requires. Also evaluate the potential commute time for your employees. "We know that when commutes get too long, people change jobs," Houston says.
Whether you should buy or lease an existing facility or buy land and build depends on a variety of factors. Usually, it is less expensive to go with existing space, even if you have to remodel, says Houston. There's also the issue of time: If you need the new facility to meet growth demands, can you build or modify an existing site within the proper time frame? Or do you need to find something immediately usable?
It depends on your location, but the cost of real estate is typically anywhere from 3 percent to 10 percent of the overall cost of relocation--not a significant issue in the grand plans of most companies. Even so, says Ageloff, "People still don't like to overpay for real estate. It's an emotional issue." And, he says, today's commercial real estate market has greater options at lower costs than in previous years.
Jacquelyn Lynn is the author of The Entrepreneur's Almanac.