Tips for Strategic Commercial Site Selection

In this article, you'll learn:

Whether to choose a familiar market or explore a new one, considering labor costs and logistics.
How to select employee-friendly sites with good transit, amenities, and environmental features.
How to evaluate lease offers by balancing upfront costs, future increases, and incentives.

Site selection is much more complicated that just looking for the most attractive space at the lowest possible rent and CAM. More than those straightforward issues, the key to finding a great location is to find one that is affordable to operate and that fits well into your existing corporate real estate portfolio and into your business operations and management structure.

New vs. Old

The first decision is whether or not you want to find a location that is in a market that you already occupy or that is in a new market. Typically, you'd want to stay close to "home" in your site selection process if your business is tied to a locality or if you need the workers in that space to be physically close to teams in other nearby offices.

When looking at a new location, pay careful attention to the cost of doing business there and to the conditions of the labor force. Some inexpensive markets are cheap for a reason -- they lack a large and diverse pool of skilled labor. This issue can be especially salient if you need a large number of workers with specific skills. At the same time, expensive markets may be even more expensive than you realize. Pay attention to local taxes and regulations -- beyond minimum wages -- that might impact costs of productivity. Finally, think about the logistics of locating in another market. Shipping costs for materials, travel costs and time for executives, can all add up.

Employee-Friendly Locations

Within a market, pay attention to site selection concerns that could impact employees almost more than you pay attention to rent. Ultimately, paying an extra dollar a square foot in rent on a 3,000 square foot office is much less expensive than having to come up with $2,000 per year in benefits or additional compensation for 12 employees that dislike a location or the costs of working there.

While it is true that many millennial workers like locations in the central business district where they can have a live-work-play experience, there is more to choosing a site that just going downtown.

Look for locations that are public transit connected, have free parking or both.
Pay attention to nearby amenities to both make life more enjoyable and convenient for your workers and for your business' operations.
Seek out buildings with LEED certification or other proof of their environmental bona fides. Employees expect this, and the lower operating costs can help make these buildings a better economic choice than they seem
Find space with personality that your workers will enjoy occupying.

Site Selection for Occupancy Cost

Only after you've completed your site selection process and narrowed down your spaces to ones that suit your business's and your employee's needs does it make sense to worry about a dollar or two of occupancy cost variables. It goes without saying that the cheapest space is best, all things being equal, but defining what space is cheapest can be complicated.

Landlords set prices in three ways.

They can change the rent.
They can change how much the rent goes up in the future.
They can offer free money at the signing of the lease.

Your broker and finance department can work together to figure out the total discounted cost of each lease offer you receive. That being said, consider whether you'd rather have a lower cost up front (more free money), lower costs during your overall occupancy (lower rent) or lower costs in the future (determined by escalations). That calculus may skew your ultimate decision.