Discover What It Takes to Make the Right Move.
To remain competitive, companies must view their operating locations as an integral part of their core business strategy. Whether the facility is a corporate headquarters, back office, research and development center, or warehouse, location can help companies access emerging markets, compete for talent, achieve operating cost advantages, or enhance relationships with alliance partners.
Along with site selection consultants, commercial real estate professionals play a key role in helping corporate executives determine and implement solid location strategies that meet the needs of an ever-changing business climate.
Typically, large companies use site selection consultants to determine needs and narrow the field of possible new locations. When company executives decide on the top three to five possible locations, brokers in those cities are contacted to provide information on space availability in the local market.
Understanding what goes into the process of site selection will help commercial real estate professionals to better tailor their services to meet the needs of relocation clients. In addition, commercial real estate professionals may be able to use these strategies to help small and mid-size organizations within their own markets make relocation decisions.
What Influences Relocation?
Recent economic shifts, along with global terrorism, have affected how companies evaluate business locations.
To reduce costs, some companies are liquidating assets they acquired less than 18 months ago, even though they may need them again in another 18 months. This is true in the telecommunications field, particularly among equipment and component suppliers. Demand currently is down as a result of the soft economy and underutilization of network capacity, yet long-term demand is projected to be high and the need for additional capacity is inevitable.
But being able to react quickly to temporary economic conditions is integral to succeeding in today`s business environment. As a result, corporate real estate executives are more cautious about lease flexibility and more interested in built-in options for early lease terminations, subleasing, and modular expansion as the need arises.
Since last year, managing risk has moved to the front burner, driving many real estate and site selection decisions. Companies are evaluating the functionality and costs of separating mission-critical operations, such as data centers and customer service operations, and providing two or more locations that act as backup for one another. Having all of a company`s core operations in one location is riskier in the event of a disaster such as a fire or act of terrorism.
But less catastrophic situations also can increase risk. For example, locations that have intense competition for certain labor resources, a less supportive business environment, or where real estate becomes difficult to liquidate can have detrimental effects on a company`s operating performance.
In another example, while terrorism has not rendered high-rise buildings extinct, executives do think harder about locating in the upper reaches of stand-alone landmark buildings or a cluster of company operations in close proximity.
In response, some companies are evaluating smaller, less visible communities that have ample telecommunications capability, lower operating costs, well-trained work forces, and access to airports with the potential for fewer security-related delays. These include secondary and tertiary markets within a reasonable distance by air or car to the headquarters city. College and university towns in the 25,000 to 100,000 population range are a good example. Technology companies have taken advantage of the student labor and the unique quality of life available in academic towns like Charlottesville and Blacksburg, Va.; College Station, Texas; State College, Pa.; and Amherst, Mass. Call center operations also have located in college towns such as London, Ontario; Morgantown, W.Va.; and Greenville, N.C., to tap the local labor market.
Other factors that influence location strategies include industry co-location trends, a company`s business strategy, and its global reach. Many companies consider where others in their industry are located. Some companies within the same industry may opt to locate near competitors to keep them within their sights and possibly help generate additional business, while others prefer to be away from direct competition.
For instance, many major pharmaceutical industry players have congregated in the Northeast, particularly in New Jersey, New York, and Connecticut. Automotive, computer hardware and software, and petroleum industries also have established geographical areas. Retail businesses sometimes use co-location, such as when auto dealers locate along a single street or restaurants group together in one area to offer multiple dining choices. Industries that have intense competition, such as parcel delivery services or beverage companies, do not like to co-locate in the same city.
A company`s position within the business life cycle also determines relevant site selection factors. For example, a startup company may need to be near venture capital and technology sources, while a high-growth company needs access to significant labor and expandable real estate resources. A mature and consolidating company should be where labor and other operating costs are low to sustain profitability as margins begin to shrink.
Global reach and a company`s need to find specific types of talent also affect location. Some companies access global markets and talent by placing different operations throughout various cities in the world. A common practice among global companies has been to put call centers in Ireland, manufacturing facilities in Spain and Mexico, software programming functions in India, and marketing in Singapore to optimize global resources, gain access to labor markets, and capture market opportunities.
Many large companies want to work with consultants and commercial real estate brokers that can deal in any city on any continent where needs are not dictated by distance, language, or local traditions.
Before any company engages in a location search, its executives should discuss and define the elements of its site selection strategy, the risk factors that are of greatest concern, any unique needs of the particular industry, and the size and specific type of operation being relocated.
Location Strategies at Work
Each site selection project incorporates an individual company`s specific needs in the search for an ideal site, as these examples illustrate.
A Midwest pharmaceutical company merged with several European companies and ultimately established its world headquarters in northern New Jersey. Its former small-town headquarters became a back office and the company built an R&D center in suburban Chicago to be near the epicenter of its industry. This plan leveraged the lower cost of the small town for back-office operations and tapped into Chicago`s labor market and university resources for its R&D efforts.
A leading home-improvement retailer based in a small market decided to keep its back office in its hometown and relocate its headquarters closer to Charlotte, N.C., to take advantage of the airport, a larger and more diverse workforce, and amenities to attract top executive talent.
To compete for information technology talent, a Midwest transportation services company needed access to additional labor markets. The company placed operations in Colorado and Florida and considered potential global locations.
A major technology company headquartered in a northeastern small town realized the value of its hometown, but made plans to manage its local growth, identify additional locations for future growth, and assure that local labor capacity is available to further diversify the local economy.
A New York City bank established a back-office operation in a mid-size upstate New York town to take advantage of lower operating costs and gain access to a good quality labor supply. Distributing its operations not only reduced costs but also improved the company`s risk position.
Site Selection Overview
As these examples show, each company`s site selection process differs significantly. But in general, commercial real estate professionals should understand the following steps to help companies make thorough location decisions, whether they are moving within their community, across the country, or around the globe.
Initially, site selection consultants meet with a company`s senior executive staff to define short- and long-term business strategies and any drivers of change. In the discussion, consultants bring up different deployment options and identify specific criteria that ultimately become the basis for the site selection process.
Next, consultants analyze the risks, benefits, and costs of different deployment alternatives, particularly the one-time relocation and other human resources costs that usually are not well understood. Getting a grasp on these costs early on avoids any "sticker shock" in relocation costs later on that can slow down the implementation efforts.
The actual site selection process begins with a series of screening steps that consider geographic preferences, size of city, and other general criteria defined by the consultants. This screening process should identify the top five to 10 locations that best meet the selection criteria.
Detailed profiles of the top locations are prepared and evaluated, and the client then narrows the field to the top three or five location candidates.
Field visits are conducted to the top locations to verify which general locations are the best fit. During this visit, a local broker is contacted and a general review of available real estate options is made. In addition, local economic development agencies are interviewed along with educators, employers, and other contacts to gain insights into the location while continuing to maintain client confidentiality.
The field visits determine which of the top locations provides the best fit for the client, and within the top choices, which city or suburban area would best fit the client`s needs. Within the top location sectors, the local real estate broker identifies the best sites or buildings in the market for the client.
Also during this phase, any available incentives that are applicable to the client`s situation are evaluated. Specific incentives vary by location but may include job tax credits, recruiting and training support, different types of tax abatements, grants and financial assistance, and support on expediting the zoning and permitting process.
Finally, the consultants provide a side-by-side evaluation of the top three locations to facilitate the client making a final location decision.
Operations Determine Needs
Specific selection criteria that apply to different types of operations are listed below.
These high-profile properties need air access to target markets and company operations, quality-of-life amenities for executive staff and national recruiting, a supportive business environment, options for spousal employment, a local culture that supports company and individual needs, and prime class A space in either downtown or suburban campus settings.
Back Offices and Call Centers.
These sites should have access to sufficient quality of productive labor, moderate labor competition, relatively low operating costs, availability of office space for quick startups, easy access to desired time zones, minimal impact from natural disasters, adequate telecommunications capability, training and recruiting resources, and a redundant power supply.
Ideally, these operations locate near major research universities in locations that provide access to customers and business partners, offer quality-of-life factors to attract top talent, and have real estate supportive of functional activity.
Manufacturing and Distribution.
Such facilities require optimum logistical positioning to suppliers and markets, access to supply of qualified labor, low operating costs, a favorable business environment, and potential incentives.
Retail sites need attributes such as access to target demographics, operating costs that reflect profit margins, and ease of transportation ingress and egress.
A Team Effort
An effective site selection strategy is the result of a team effort between commercial real estate professionals and corporate representatives in which the real estate practitioner has an in-depth understanding of the company`s needs.
Company real estate portfolios may change dramatically with a company`s needs, but a commercial real estate professional`s sound strategy and good implementation can help make the company`s real estate a strong asset over time.