Selecting the Right Office Space

Selecting the Right Office Space

Business owners trying to decide whether to move company offices have a lot to think about. The first step is to analyze why your firm can no longer thrive in your current location, or why business would boom somewhere else. Then, explore the many options available to expand your headquarters - from ownership arrangements to rental space.

Pre-Move Analysis - Find the Right Reason

Aside from staff salaries, the cost of owning and maintaining a facility may be a business owner's largest expense. But there are other reasons too.

A decision to move should ride an objective analysis of needs, total costs and whether a different location will benefit your company. Other factors include:

  • Space. Many companies relocate because they lack sufficient room for product display, inventory or employees.
  • Neighborhood. If socioeconomic changes or neighborhood deterioration have impacted sales, moving might be your only option.
  • Customer and client access. Moving closer to your target market could dramatically revitalize sales.
  • Suppliers and vendors. Physical proximity to commercial providers can be critical to businesses that rely on efficient supply chains.
  • Rent, operational costs. Affordable rent, utility costs and lower taxes can dramatically improve the bottom line.
  • Infrastructure. Internet capabilities and technical/equipment services can be prime relocation incentives.
  • Workforce. Moving your base of operations may open up greater access to employees with the right skills and training for your industry.
  • Image.Your current location may project the wrong image for your business.
  • Business contraction. With smaller operations, maintaining headquarters in an industrial park may no longer make economic sense.
  • Shrinking business district. When neighboring businesses are moving out of the area, it can mean disaster for companies that depend on foot traffic.

When you have completed your analysis, score the points in order of priority. The results will help you determine whether moving your corporate offices is the smart thing to do in the near term.

Relocation Considerations

You have decided to pull up stakes and go. Now, it's time to research the best places to relocate. If you opt to move operations to another city, county or state, consider these factors:

  • Income taxes and sales taxes vary greatly from state to state. The same goes for city and county fees, such as property, occupation and wage taxes. So if a neighboring state, county or city is close to where you reside, it could be cheaper to run your company there.
  • A neighboring city may be friendlier to the type of business you are opening. Consider variations in the cost of rent and availability of labor as you compare adjacent towns.
  • Supplier and vendor access can fluctuate across geographic areas - a key factor if your business requires quick delivery turnaround.
  • Examine the types of businesses that would operate near yours. Would their patrons frequent your business - and vice versa? How accessible is the property to customers? What is the parking situation? Is it in a safe part of town? What does traffic look like? What would your commute look like?
  • Wages and salaries. Think about your short- and long-term business plan. Does the workforce in the area you're considering meet your requirements? Can you adjust your wage scale to attract talented employees?

Financial Incentives: Economic Development Zones

Economic development zones offer tax incentives, credits and other benefits for businesses that establish or expand in that area. Geared primarily to manufacturing businesses, the provisions vary from state to state. Unfortunately, funding has tightened for such initiatives, but two programs remain and are worth investigating:

  • Enterprise Zones. Enterprise zones typically exempt business owners from paying property taxes, but other tax breaks may apply. Generally the tax break lasts for a fixed number of years, most commonly from three to as many as 15 years. Other incentives may include low-interest loans, credits for training new employees or subsidized utilities.
  • Foreign Trade Zone. Foreign trade zones - known internationally as free trade zones - allow businesses to avoid custom fees and import and export taxes. Typically, they are located near major transportation hubs like interstates, airports, and railways.

Check with city or local government offices to learn about economic development zones and other community or government-sponsored incentive programs.

Down to Specifics

Once you've narrowed your search to a geographic region, it's time to get specific. Location matters, whether you sell products or services that depend on customer calls, or simply need office or manufacturing space. The following guidelines offer a blueprint for making sound, profitable decisions on precisely where to house your office or company headquarters.

What Do You Need?

What your company needs to operate most effectively will drive many additional decisions. Items might include:

  • Size and layout requirements
  • Type of structure and appearance
  • Special requirements such as ceiling heights, loading docks, etc.
  • Internet infrastructure
  • Power, water or other utility requirements
  • Parking and access for employees, customers and persons with disabilities
  • Basic and additional facilities such as restrooms, kitchens, break areas, etc.
  • Flexibility for expansion or alteration should business requirements change

A location that does not meet your short-term needs isn't suitable no matter how appealing it might initially seem. Keep in mind that cost is a factor, too. You may think you've found the perfect location, but if it's too expensive, file it away for consideration down the road.

Your Personal Office: Size Matters

Whether you plan to stay close to the company or house administrative operations off-site, some standard rules of thumb regarding office space do apply:

Figure on 175-250 usable square feet of space per occupant. Of course, this can vary considerably, depending on the type and style of the business.

  • Typical "presidential" offices range from 150-400 square feet.
  • Secretarial and administrative space ranges from 60-110 square feet.
  • Conference rooms should allow 25-30 square feet per person for a traditional arrangement. In a classroom or theater style setup, estimate 15 square feet per person.
  • Your reception area should accommodate a receptionist, as well as the average number of people expected at any given time. If you routinely will have groups of six to nine people arriving and waiting for appointments, make sure you have at least 300 square feet. For smaller groups of three to five, figure at least 200 square feet.
  • Consider other space requirements, such as file rooms, library space, break rooms, mail rooms and general storage. A conference/hospitality area is useful for frequent staff or client meetings.

If yours is a creative environment where teamwork is important, you may want open areas to collaborate. On the other hand, when employees are involved in phone negotiations, research and other high-concentration tasks, private offices or cubicles may be more workable.

The Final Decision

Once you have nailed down your must-haves, develop a short list of locations. This stage of the process involves more questions:

  • Does the location meet my basic layout requirements?
  • Does the location meet all current space requirements: retail, storage, office, workroom, break-room, etc.?
  • What are my options if I need more space?
  • Do the existing utilities meet my requirements? Who pays for upgrades?
  • Is the location convenient for me, my employees and my customers?
  • What impact will nearby competitors have on my business?
  • Does the location enhance my company's reputation?
  • Does the location include adequate shipping and receiving facilities?
  • Will stocking and replenishing supplies or inventory be difficult and time-consuming?
  • Is sufficient parking available for customers and employees?

If it helps, score each location on your short list based on the questions above.

Factor in Cost

After ranking preferred locations, consider cost. All considerations being equal, go for the least expensive option. Conversely, cheaper is not always better. A location more expensive in terms of lease cost but with better access to potential customers might be the best choice.

Weigh the costs and benefits of each location in terms of your requirements and goals. Think critically about what you really need to help your business succeed - and then, factor in costs and expenses to determine what you can afford.

Get Help from the Pros

Once you've done a cost analysis and market research, engage a qualified real estate or buyer's agent to take you through the purchase or rental process. They understand the market, know the area and can help you find the right fit for your circumstances.

A good agent can also help you and the owner develop win-win compromises on items like rates, improvement costs, rights of expansion, renewals, and lease cancellation terms.Sometimes, an accomplished agent can even help with negotiating leases.

Other specialties available as contract services include:

  • Market and data analysis. Agents know what is available, what might be available in the future and have a solid sense of overall lease rates. An agent can also help you determine other costs like taxes, fees, utility costs, etc.
  • Space requirement and location analysis. Agents can serve as a sounding-board as you describe the type and amount of space you need, recommend alternatives, and help you determine the right areas for your type of business. A good agent also has a sense of where your competition is and where compatible businesses are located.

Office Costs - Buying Versus Leasing

Now that you've finalized your decision to move your office, either out of your home or to a better location, you have two choices to make. Will buying or leasing work best? And what type of office space best dovetails with your business needs?
The deciding factor between buying or leasing is the cash-flow situation. Normally, leasing requires less money upfront - a fact that tends to appeal to folks just starting out. Other dynamics in the decision-making process include:

  • Permanence. Buying is a viable option if you plan to stay in one location for at least several years, particularly if the neighborhood is well-suited to the market.
  • Affordability. Business owners looking to buy usually are willing and able to make a substantial real estate investment.

Buying office space may require cash up front, but the benefits usually make the investment worthwhile. Still, there can be drawbacks. Consider these comparisons:

Buying Benefits
  • Fixed costs. Besides locking in a long-term commercial mortgage, you won't be dealing with rent increases.
  • Tax deductions. Owners can usually deduct the full amount of mortgage payments, with repairs written off immediately.
  • Extra income. You may be able to lease out a portion of the building if you determine you have excess space.
  • Control. If you need to make substantial changes to the building, you own those changes. Business hours are up to you, and you can remain in your location indefinitely.
  • Future sale. You'll benefit financially if you sell in a good real estate market.
Buying Drawbacks
  • Upfront costs. Commercial space will initially cost far more up front. Property, appraisal and maintenance costs, along with a large down payment and potential property improvement costs, also are concerns.
  • Long deduction period. Improvements to commercial properties have to be deducted over 39 years. Depreciation on commercial buildings likewise is taken over a 39-year period.
  • Lack of flexibility.You may outgrow your space and be forced to sell.
  • Poor real estate market. Should you decide to sell, economic downswings could force you to accept a lower price.

On the flipside, leasing office space allows business owners to set up operations in prime locales at affordable prices with little initial cash outlay. But as with buying property, there are two sides to consider:

Leasing Benefits
  • Free-up working capital. With your money not tied up in real estate, your business can respond to market opportunities. Your ability to borrow funds will not be as limited as it would with buying office space.
  • Easier to qualify. A b credit rating is not as critical for leasing. This can be a big plus for start-ups and small businesses.
  • Tax deductions. Your monthly lease payment is tax deductible as a business expense.
  • Freedom. You can sublet and move to another location, minus the hassle of selling. Likewise, you run no loss risk in a bad real estate market.
  • Time. You'll be free from the headaches and costs of maintaining your own building.
Leasing Drawbacks
  • Variable costs. You may be subject to annual rent increases and higher costs when your lease expires.
  • Non-renewal. You can lose your office space upon contract expiration.
  • Broken lease. Should you choose to break the lease, you can be liable for rental costs for a prescribed time period. The landlord may hold you responsible for advertising fees incurred in a tenant search.
  • Lack of equity. You will be funding someone else's retirement with your lease payments.
  • Lack of control. You may not be able to modify the space to your liking, and your landlord may be difficult to work with.

Commercial real estate experts advise projecting your long-term space needs before signing a lease agreement. Standard contracts may run for several years, so plan accordingly. Other tips to consider:

  • View a range of properties before making your final decision.
  • Seek concessions from the landlord. Depending on the market, you may be able to negotiate a few months of discounted rent or a "tenant improvement allowance", which is cash for improvements you wish to make.
  • Look for hidden expenses in the agreement. Charges above your fixed or base rent, such as operating expenses, are not uncommon. These items may not be listed in the term sheet, so ask specifically for this information.
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