With all of the focus that many companies put on managing occupancy cost, it can be easy to think that cheaper space is usually better space. However, there are times when it's possible to spend too little on the spaces you rent. Ultimately, the right space isn't the one that costs you the least. It's the one that generates the most profit for your company. Here are some reasons that you might want to spend a little more, instead of a little less, when you look for a space:
Adding Value With Amenities
Modern workplaces frequently use their amenities to compete for talent. The onsite day-care center and fitness center isn't a feature anymore -- it's a given. Building lavish break rooms, employee cafes and yoga studios into your offices can balloon their sizes -- and their costs. Instead, looking at a building that may have a higher rent per square foot, higher CAMs, a higher load factor or a combination of all three but that also offers its own load of shared amenities could end up lowering your overall occupancy costs.
Better Branding
Moving a few miles up New York's Fifth Avenue from the downtown Flatiron district to the tony shopping district south of Central Park entails an almost ten-fold increase in rent -- from $358 per square foot to over $3,000. Nevertheless, many companies feel that the branding benefit that comes from having a flagship location more than outweighs the higher occupancy cost. While your business might not need a retail outlet at Fifth and 55th, you can get some of the same branding benefits by upgrading from an older Class B building to the newest Class A property in your submarket.
Rent vs. CAM
Rent isn't the only component of occupancy cost. Some companies advertise low rents to attract tenants but make up for it by charging more for common area maintenance. Whether the rents are low because the building is old and needs repair or the CAM is high because the owner is double-dipping by charging a management fee for itself, you end up paying the same or more as you would in a building with higher rent but lower operating expenses.
The Value of Location
Location isn't only a branding benefit. It can lead to real operational savings as well. For instance, a closer-in warehouse can reduce what you spend to have goods trucked in and out. Given enough trips, even a few miles' difference can add up to real money over the course of a year's logistics budget. For a sales force that spends a great deal of time on the road, a location with excellent freeway access and proximity to clients may make the difference between a sales person making four calls a day or five.
Better Layout
Some spaces cost more because they make more sense. Spending more for a taller warehouse that gives you a larger cube -- if you can use it -- ends up saving you money in the long run. An office building with a larger floor plate that gives you a more contiguous office that you can lay out better could leave you with more usable space even after leasing less rentable space. Shaving 500 or 1,000 square feet off of your lease can frequently justify paying a few more dollars of per square foot occupancy cost.
