There’s more to commercial real estate costs than the number you get from multiplying square footage by the lease rate.
Understanding the true cost of occupying an industrial property includes other variables, many of which are harder to calculate, but can nonetheless seriously impact your cost of occupancy.
Let’s take a look at a few of these additional variables that could be costing you more than you think.
The importance of location depends on the type of business you are in.
Suppliers and service providers need to be as close to their customers as possible, not only to provide fast and convenient access to their products and services, but also to lower the cost of delivering the same.
Every extra gallon of fuel or minute of time to access the customer has a cost, whether the customers you supply come to you or you go to them.
If you provide on-site services, more travel time means fewer service calls and more dollars out the tailpipe each day. If your competitors are more strategically located than you are, you are at greater risk of losing existing customers and it is more expensive and difficult to get new ones.
These variables are harder to quantify than the rent you pay, but choosing a location based on lease rate alone may be a decision you regret in the long run.
Most businesses are unclear on just how much it costs to operate an industrial property before they sign on the dotted line.
The type of lease you sign along with the age and physical condition of the property you lease, can and will affect the amount you spend to meet your responsibilities as a tenant. Whether you lease your property on a net or gross basis, most of the responsibility to maintain the property falls to you.
In a net lease, your costs are virtually the same as if you own the building. You pay it all; property taxes, building insurance and the entire cost of maintaining building systems from the foundation to the roof and everything in between.
In a gross lease, your rent includes the property taxes for the first year of your lease, but you pay the increases over that base in subsequent years. The cost to maintain the roof, foundation and walls are also included, but you still pay for everything else.
With all that in mind, it is important for you to make sure that the building you lease has been properly maintained before you lease it in order to avoid costly and time-consuming repairs that could have been avoided with proper maintenance.
Every dollar spent is still a dollar, no matter what you spend it on.
In a perfect world, every business would build a facility that would maximize efficiency, reduce waste and offer the flexibility to make adjustments as the business changes with market forces.
Moving over and over again costs money. So does trying to function in a building that lays out poorly due to its shape, door location, clear height, office area, parking spaces, outside storage area, truck access, etc. etc. You get the picture.
Every business owner should be asking the question: if this was the perfect building for my business, how would it be different?
Quantifying the true cost of inefficiency can be difficult, but that doesn’t make it any less important. Bottom-line profitability starts with top line revenue.
Could your business produce more of both in a different location?
Having the right people working for you is critical to your overall success.
Anyone who runs a business knows that hiring the wrong employees and losing the right ones can be painful and expensive. That is especially true today because businesses of all types are becoming more sophisticated, complex and specialized. Competition is intense whether you make titanium parts for jet engines or service HVAC equipment for local homeowners.
A facility that gives you access to the right people and the amenities that improve the quality of their work experience will help you find them and keep them happy working for you.
Guiding questions in this area include:
- How accessible to your employees is your current location?
- If you were in a more convenient location, would it shorten commute times, lower transportation costs and reduce the stress level of your valued employees?
- How much productive work time are you losing because of heavy commuter traffic and having employees return late from lunch because they have to drive for miles to get a sandwich?
- If you could offer a better overall work environment, could your company be more profitable?
Projecting the proper image to customers is very important to the long-term success of any business. For some, the quality of the facility is front and center.
When customers come to your building, what first impression are they likely to have about you and your company? Does your location suggest quality, attention to detail and commitment to superior service? How does your facility compare to those of your competitors?
If you had a higher image facility, could you earn more business from your existing customers and gain a competitive advantage in attracting new ones?
If the answer is yes, you are leaving money on the table, and it may be worth the investment to pay more for better space.
Quantifying Quality is the Hard Part
Pegging a dollar value to any one of the foregoing is not easy. There are no specific keystrokes on the calculator or cells on an Excel spreadsheet that can accurately determine the actual cost or benefit of your current location. But, that doesn’t mean it’s not worth paying attention to.
Having a good understanding how your current facility truly impacts your business is a good first step in the process of finding a new one.
Having assisted over 4,000 businesses make moves over the past 3 decades, we are uniquely suited to assist you in that effort. Give us a call.