Your lease expires in 12 months and
it’s time to decide where you want
your company to be located for the next 10 years. You have a solid work
force and good cash flow. Do you stay
where you are or find another building?
“When representing tenants, we tend
to look at the company’s current economic situation and what other options
exist in the market,” says David Todd,
first vice president for CB Richard Ellis.
“Maybe it’s time to see what someone
else is offering.”
Smart Business spoke to Todd about
how to tell if renewing a lease or relocating is the better choice for your
company.
How does a business owner know if it’s better to renew or relocate?
First, you analyze the market. You look
at vacancy rates in your current building
as well as areas that may offer your company a strategic advantage by relocating,
such as proximity to clients, vendors or
amenities.
Next, a broker can determine incentives for each of the different locations
— including the building you currently
occupy. Your landlord won’t always
want to offer you as aggressive a deal as
he would offer a new tenant because he
knows that moving costs money.
You also need to look at sublease
options versus direct-lease options.
There may be a great sublease available
from a large company downsizing, merging or relocating to a more suitable
building.
Finally, you compare proposals from
the relocation options to what you pay at
your current location.
Another option is looking at the economics and affordability of purchasing a building or a build-to-suit (building not owned
by you but built specifically to accommodate your company’s needs, whereby you
lease the majority of the building). Over 10
years, you may see great appreciation and
the tax benefits of ownership.
Signals that it may be time to purchase
a building:
You’re a growing business and cash
flow is great
You know that you’re going to be
around for at least 10 years and that your
employee base isn’t going to shift too
much in either direction
The current owner of the company is
in a position to purchase a building and
lease it back to the company.
Does it make sense to upgrade or downgrade a space?
You have to ask yourself several questions before you make this decision,
questions that are based on the needs of
the business. Are clients coming to your
office, or do you mainly go to your
clients’ offices? Is the company office-driven, cube-driven or an open atmosphere? Has your corporate culture
changed as the result of a merger or
acquisition? Is your work force getting
younger and more trendy, or is it mostly
suit-and-tie?
Other factors include whether you
need to expand or contract your office
space based on the current financial situation of your company. Does technology drive your company, and does the
current building have the technological
capabilities it needs? Is there a strategic
need to be in a higher profile building?
Are you now a public company? If the
company’s been around for a while, do
you want your name on the building? Do
you need to be close to certain clients,
such as the largest law firm in the area
or the headquarters of a certain company? And, finally, what are the demographics of your work force? Are your
people having traffic issues and do you
need to be close to public transportation
or the airport?
If a company is growing rapidly, when does
it become apparent that it needs to move to
a new building?
If the company has expansion rights or
expansion options, then it may not need
to move at all. Expansion rights — part
of the original contract — give the company the right to expand into an adjoining suite or onto adjoining floors. If a
company has 10 floors and expansion
rights for two more, those floors must be
made available when the company
states that it wants to exercise its expansion rights. With expansion options, a
company has the right of first refusal on
adjoining space as it becomes available.
Strategically, if a company feels the
need to re-brand itself and raise its profile, a new location can provide somewhat of a catapult for accomplishing
that initiative.
To get you to stay in your current building, your landlord may offer you the
option to relocate your growing company to a larger or more prestigious space
in the building or move a smaller company to another floor in order to keep
you from leaving. This creates a ‘winwin’ for both parties.
DAVID TODD is first vice president at CB Richard Ellis in
Brokerage Services. Reach him at (404) 504-7916 or
[email protected].