Location, environment—and the ever-fluctuating demands of the real estate market—play a critical role in a company’s success. Value and profitability are tied not only to a company’s business model, product and processes, but to the place or places where they operate. As buildings go up and industrial plants come down, landscapes change and perceptions—along with demographics, populations, and commercial and community needs—vary. Over time, the real estate needs of corporations will change, which means that understanding how to manage corporate real estate change and how to identify the right market for a business is crucial to success.
Making a real estate or geographic change is a big decision for a company, one that can have a significant impact not only on your day-to-day business, but on the long term success of your organization. While the perfect combination of factors for real estate success—location, market value, availability, demographics, etc.—may not be readily available, by weighing a plethora of factors and making informed decisions, you can make a smart move that can improve your bottom line.
Begin with the exit in mind
The most important factor in making a big real estate decision for your company is to begin with the exit in mind. Whatever is driving you to make the change—whether it is to expand your business, enter a new market, find better freeway access for your employees or to contract operations in an area—may change again. Although real estate is by its nature a long-term play, it is not one built on permanence. Understanding how the value of the property will change based on controllable and uncontrollable variables will help you to make smart choices throughout the entire process.
Beginning your real estate change with the exit in mind will guide you through a number of critical decisions, such as:
How to choose the right market and property in which to invest. No one knows your business and customer base better than you. The most effective market is one that appeals to your clientele, to your employees and that has potential to improve in value. Be conscious of population and business shifts and be wary of selecting a property in a market that is in decline. Avoid locking yourself into a difficult space that would not meet the needs of other companies.
How to navigate—and negotiate—through the right type of transaction. One of the most critical considerations when selecting a new market, property or real estate investment is whether to lease or buy. While there are multiple decision points that will factor into your decision to build a new facility, purchase an existing facility or to rent out corporate space, but your overarching strategy should absolutely include an exit plan. You will always save more money when making changes to your operations by being flexible and strategic in your exit.
Evaluate key location considerations. Is your potential new site difficult to get to? Will your employees have a long drive in every morning? How important is customer access to your site? Understanding the day-to-day practical elements of your new property will help you select the right location for operations. If there are not available facilities that fit your business and location needs, consider building a new structure—just make certain that it is not overly customized for your company. One of the biggest mistakes we see otherwise talented CEOs make time and time again is designing highly specialized buildings. If the time comes to move, lease, or sell, you will want the space to appeal to a variety of buyers. Use technology, furniture systems and decoration as distinguishing elements – not building structure and floorplans.
Change comes in many shapes and sizes, and may be the result of positive developments such as expanding your business as well as contracting or reducing operations. If you are conscious about finding the right size and right space for your company, you will have opportunities to improve or expand when business is good, without having more real estate than you need when times are bad.
Business leaders that are prepared for the inevitable surprises and changes that may occur in your company and market will have the strategic flexibility needed to handle whatever may happen. Begin with the end in mind is the type of philosophy that helps companies save money in the bad times and be efficient with their property in the good times.
Engage a real estate professional
It is well known that in order to make good decisions, you need good information. If knowing is half the battle, then the best real estate deals come about when you combine your extensive business knowledge with the market knowledge of a real estate professional. The right real estate professional will bring targeted expertise into the market you are interested in, the availability of potential properties, anticipated demand, and an understanding of how the area is expected to grow and change in the short and long term. In short, your real estate professional should have detailed access to information that others do not.
The right professional to manage your real estate change may be a broker or a consultant. Make sure that you understand how each professional will operate before committing. Real estate brokers aim to manage and complete the best possible transaction. Their commission is built into the back-end of the transaction, so be sure to understand how the fee structure operates and fits into your budget. Real estate consultants are an investment in the front-end, but may be able to explore creative solutions outside of a straightforward sale. There are reasons to hire either a broker or a consultant, just be sure to understand the process to select the right professional for your needs.
All markets are not created equal
Many dynamics impact success in a real estate market and it is important to recognize that markets behave differently and that you cannot necessarily expect one market to behave as any other. There is no one-size-fits-all solution, so it is very important to avoid rushing or making reactive rather than proactive decisions. Corporate leaders planning a substantial real estate change should think like investors in real estate, not just owners or occupants. This mindset can ensure that your company gets the most out of your investment.
A real estate purchase or investment can have a bigger impact on your business than just an address. While your main focus should always be to run your business, there can be a big value in real estate investment when you take thoughtful and informed considerations into account.