Your current commercial leases may be costing your company more than you know. With the nation’s volatile economic conditions, the importance of reassessing your space is more pertinent than ever.
It is no longer a conducive financial model to run on existing metrics of space requirements, lease terms that don’t fit your needs, or running your business in business-unfriendly areas.
Instead, you can slash your CRE costs by:
In recent years, the divide between business-friendly and business-unfriendly areas has become wider than ever. And how do you know if you’re in a business-unfriendly area? Well, the chances are you already do.
These regions are characterized by expenses you likely will recognize, including:
- Taxes
- Rent
- Gas
- High cost of living
(Cost of Living Map - National Average is 100)
If this sounds familiar or you are just curious about how to improve your bottom line, it is time to re-analyze your current commercial real estate portfolio. You have room to reduce your overhead while still securing the optimal property features and lease terms.
How do we know this? As Tenant Reps, we have seen how our corporate clients have benefitted from right-sizing, renegotiating, and relocating their corporate real estate to business-friendly areas. We have streamlined this process to benefit tenants, and tenants alone.
Want to learn how? Read on.
1. Right-size Your Space
Right-sizing is a thorough assessment of how much square footage your organization needs now and in the future. To do this, you need the current headcount of employees and a projection of what it will be for at least the next five years.
This estimate will then be multiplied by the necessary square feet requirements for one employee to work comfortably and safely. Gone are the days of 100-150 square feet per employee. Organizations have realized that limiting each employee to this measurement has had adverse effects on the health and morale of staff.
Companies need to provide more elbow room if they want to recruit and retain great talent.
With this in mind, 200-250 square feet per employee is a more accurate assessment you should be looking to provide. Combine this factor with your projection for staff quantity, and you have your optimum property size.
(Usable Sq/Ft per Employee {250 sq/ft}) X (Projected # of Staff)
With a clear assessment of your property needs, you may find that you are exceeding or underutilizing your space. Wasted space, in particular, is a significant way that companies lose money on their commercial real estate investments.
Let’s look at how efficiently right-sizing will cut your budget in a business-unfriendly area.
So how can you use this optimized figure to cut down on costs? Your first option is to renegotiate.
2. Renegotiate With Your Landlord
You potentially have endless options with renegotiating. For example, if you are near the end of your lease and negotiating a renewal, you may be able to use this right-sized figure for the space you want to keep in your current property in exchange for a longer-term.
It’s not just that simple, though. That is why it is so critical to work with a negotiating expert like a tenant rep. They help corporate tenants year-round and know the best negotiation tactics to use to secure their clients the best lease terms at the optimal price.
And how do they assess what an appropriate price and property look like?
Tenant reps will not analyze the price of a property until it fulfills the appropriate key performance indicators your company needs. Of course, these factors will vary according to your organization’s unique culture.
Depending on how thoroughly a property meets your needs, your tenant rep can leverage the value of your tenancy with other viable properties.
The key is never to put all of your eggs in one basket. If a landlord knows that they are not your only option, they will be more incentivized to agree to lower rent costs and better lease terms to get you in their space.
3. Relocate Your Business
If your current lease is ending and you are ready to move on, relocating is perhaps the most significant step you can take to reduce your CRE costs.
Relocating doesn’t necessarily mean overhauling your entire portfolio. Your organization can benefit from moving whether it is your headquarters or smaller satellite offices.
Where Should I Relocate?
Keep in mind that depending on the type of operation you plan to move, the requirements for the new property’s geography may differ. The optimal location for a satellite office may look different than what it would be for a headquarters.
Locations Near Schools
For example, a company looking to move their headquarters may look for real estate in areas with densely populated higher degrees or closeness to top schools.
If you are looking to recruit top talent, you want to be in an area with top schools to get that educated workforce with the degrees that fit what your company is looking for.
(Map of FL Universities courtesy of Mycollegeselection.com)
Proximity to Fine Retail
Another benchmark for where companies may be looking to relocate their headquarters is in close proximity to fine retail. Think about where Apple stores are located when you are looking to reposition your headquarters.
Headquarters denote executives, and executives are the brain trust of organizations. Consequently, they seek to be surrounded by their peers in areas where cerebral tools are easily accessed.
Essentially, Apple has done the research for you. They only place stores in areas that meet a specific population density of wealth, quality of life, and access to resources.
(Map of US Apple stores courtesy of Red Lion Data)
Of course, the going market rent for Class A space in these areas will likely be higher than in others. That is why it is so key to consider business-friendly states and cities to relocate your business.
Their lower overhead and tax regulations are particularly welcoming to companies. As a result, there has been a massive migration of corporations to these areas.
Best Business- Friendly Areas for Relocation
States and cities with reduced corporate or personal income tax rates are perhaps the most desirable for corporations.
For example, you may want to look to states like:
- Florida
- Tennessee
- Texas
- Nevada
These states have seen a significant corporate migration in recent years due to their focus on creating the best possible environment for businesses to succeed.
More businesses are now realizing they can now relocate to areas that are more business-friendly, have a better quality of life, and more reasonable prices.
You are not limited to these areas, but there is a reason that companies across the nation are flocking to them.
In these business-friendly states, you can reap the benefits of:
- Lower rent rates
- Lower gas prices
- Lower sales tax
- No or reduced corporate income tax
- No personal income tax for top earners
Do I Still Have Time to Relocate?
Of course, there is time to relocate, but time is of the essence. The wisest thing you can do for your organization is to get in on the ground level of this opportunity.
As more corporations move to business-friendly areas like the sunbelt, real estate demand is sure to go up. Be aware that even if rates rise, they are still a fraction of what typical expenses are in business-unfriendly areas like California and New York.
The genie is out of the bottle. Companies are realizing that areas of high taxes, gas prices, and cost of living are not sustainable for the long-term growth of organizations.
(Map of US gas prices Courtesy of GasBuddy as of 4-6-22)
How a Tenant Rep Will Enhance Your CRE Budget
Right-sizing, renegotiating, and relocating is a process that requires intense thought and planning. The results are most achievable if you work in collaboration with a tenant rep.
The market knowledge they have will increase the ease and efficiency of each step. They are around from the initial decision that your CRE isn’t working the way it should, to negotiating on your behalf with a new prospective landlord.
They are experts in market research, creating leverage for your tenancy, and isolating the most optimal terms at the best price, while only protecting your interests alone.
To learn more about the benefits of working with a tenant rep, check out this article!
Wondering where to begin?
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