Commercial Real Estate Strategic Planning
It’s an exciting moment for companies when a real estate decision is made. Whether it be purchasing land for new construction, buying an existing building, or signing a new lease. That transaction and the resulting space will play a critical role in your business. It will be the space where your business comes together to collaborate, or your products are assembled and distributed. The conversations and decisions that are made before a real estate transaction are important and integral in supporting a business.
We sat down with Sue Grimm, Principal at Cresa Minneapolis, to discuss what happens before a transaction and the value of strategic planning.
What questions should business leaders be asking prior to making a real estate decision and how does it differ for small and large transactions?
Sue: It’s first important to acknowledge that strategic planning is valuable for business leaders who make both small and large real estate decisions. For a business that needs 5,000 – 10,000 square feet of office space, a less rigorous approach can be taken. However, it’s still important to understand your ideal employee. Where do they currently live and where might they want to move? Certain locations in the US attract a specific type of professional. If you are looking to recruit and retain the best IT talent, Silicon Valley was once the premier destination for those companies. There is more flexibility in remote work today however understanding where your employees want to live and work will often dictate the location of your offices.
For business leaders contemplating a large transaction, especially industrial and manufacturing, understanding your workforce is critical. Bringing a new manufacturing facility online will take a lot of new employees. Who is my ideal employee, and where do they live in proximity to my new manufacturing facility? How long does it take for my ideal employee to commute to this new location compared to the location of my competitors? Are there enough employees with this skillset in my immediate area to meet the demand of our new manufacturing facility?
In addition, completing a cost analysis is important in deciding the best route forward. What is the cost of a build-to-suit vs. moving into an existing space? You should also consider a cost analysis on the timing associated with a build-to-suit vs. existing space. Depending on construction material lead times, a build-to-suit could take 18+ months to complete, which could be cost prohibitive from a revenue perspective if you are not manufacturing and distributing product during that time.
In today’s climate with remote work becoming more common, how are you helping business leaders evaluate their space needs and location strategy, specifically for office tenants?
Sue: The first place we start with discussions like this is to gather qualitative data from employees on where they would prefer to work. We commonly use a survey tool to capture this information. It’s important when designing the survey to keep questions broad (example: would you prefer to work in a downtown or suburban environment). Questions that are too specific, like cities or specific buildings, can be too granular and will slow down the process. We will also create an employee map to understand where team members will be commuting from, even if it is just a few times a week.
From that point we can establish location parameters that focus our attention to specific areas. We then evaluate the costs associated with moving (lease, parking, improvements, etc.) and available budget from our clients to narrow our search. We can then schedule tours, select the most favorable space, and move forward with a transaction.
What do you see as common missteps for companies when planning for a real estate transaction?
Sue: I’ll speak to my experiences with manufacturing clients. Too frequently companies don’t put enough weight on current and future employee demographics. The location of the facility in relation to your current and future workforce is a vital decision. It’s expensive to lose employees when the relocation makes the job no longer feasible for your current employees, but you are also balancing that with the needs of your future workforce and job growth. You can have a wonderful new facility in a popular part of town, but your workforce demographics are the most important ingredient in making the new facility a success through creating products and generating revenue.
I also think it’s important to approach the planning process with an open mind. Preconceived directions can often be detrimental to the process. You want to make sure you are putting proper weight on the things that matter most to ensure the broader project is a success.
If you are interested in listening to full interview, you can find us on your preferred podcasting platform at The Occupiers Advantage | Twin Cities Podcast.