Real estate is usually the second or third largest expense item for companies. Logically, then, many businesses focus on economics in a site selection process. On occasion, however, a business will focus exclusively on the rent at the expense of other important variables. There are other quantitative factors which also impact a business’ real estate costs, as well as qualitative factors worth serious consideration.
As I discuss in my article on financial analysis, a commercial office lease is a complex financial structure, and there are many factors to consider in determining its true costs to the tenant. In addition to the base rent, tenants should consider the following variables in their site selection:
- Rent abatement and rent escalation
- Operating expense pass-throughs
- Tenant improvement expenses and allowances
- Options (renewal, expansion, contraction, cancellation)
- Add on factor (rentable vs. usable square feet)
- Relocation costs
There are also important qualitative factors to consider in a site selection. In addition to the base rent, tenants should consider the following variables in their site selection:
- Location of existing and future employee base
- Synergy with area’s business environment (particularly important for medical office)
- Proximity to customers
- Ease of access
- Area amenities
- What statement does the property and office make about your company?
- Who will visit your office? What conclusion do you want them to reach?
- Will the facility’s image enhance or detract from your ability to hire quality employees?
- Do the majority of your employees live in a particular location?
- Will your company lose employees as a result of relocation?
- Which locations provide a sufficient employment base?
Businesses should retain a tenant representation commercial real estate broker to help with their site selection. A tenant representation broker will calculate the true costs of each alternative (the true cost DOES NOT equal rent) and will ensure that important qualitative factors are also considered.
Source: Oak Brook Office Report Blog