When you're opening an office in a new market, there's a lot to pay attention to. Choosing the right location when you don't know the market can be challenging. In addition, different communities frequently have different cost structures and governmental regulations that can take you by surprise.
Choosing a Location
Finding a location in a new market is challenging because you need to make a long-term commitment without a real understanding of the community's real dynamics. Using existing locations in your real estate portfolio can be a good starting point. Pay attention to factors like:
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Central Business Districts (CBDs). If you choose a less active area, consider the distance to the CBD.
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Demographics of surrounding area
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Proximity to major freeways, public transit, airports and other transportation areas
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Location of competing businesses
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Nearby amenities like restaurants, daycare facilities, and shipping services
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Availability and cost of parking
All of these metrics will tell you if an area is a good match for your business right now. To figure out if your business will want to be there in the future, you'll need some expert local advice. Work with a local tenant representative that can help you understand the community's trajectory.
Paying careful attention to the health of other major employers in the area can also give you a better sense of the area's prospects. If you are buying in a fringe area or in an in-fill area where you will be surrounded by new development, research the nature of those developments to ensure that you do not end up in an unsupportive area.
Complying with Local Laws
When you open a location in a different state or city, you will need to comply with their laws. At a minimum, this frequently means getting a business license. However, some jurisdictions have special requirements for how you compensate your employees, what types of perks you offer, or even the types of garbage cans that you use in your space. For example, Santa Fe, NM requires you to pay a minimum wage that is over ten dollars per hour and San Francisco can fine you $500 if you don't have the right kind of recycling bins. A broker can help you with this, but you may need the assistance of a local attorney to ensure that you stay on the right side of the law.
Projecting Costs
Occupying space in Florida carries a different cost structure than occupying space in Minnesota. Even if you can find a property with the same net rent, same quality, same load factor and the same management styles, you're going to find that your costs diverge greatly. In Minnesota, you're probably going to have higher utility expenses due to the need for heating and extra lighting during the short, cold winter days, while in Florida your property manager will be passing on the cost of year-round groundskeeping and of dehumidfying and cooling the building during the hot and humid summers. Some jurisdictions have high property taxes and high labor costs for maintenance and cleaning personnel, while others are less expensive.
If you're leasing out space on a full service gross basis, these costs are built in. Since triple net leases are popular in most parts of the country, though, you'll be paying them. To ensure that you aren't caught by surprise, research not just what the building's current CAM and tax rates are, but also what they've been over the past few years. Try to research if prices for utilities and services are likely to go up, as well, so that you can better project your costs.
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