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Factors to Consider When Selecting a Business Location Other Than Rent

Factors to Consider When Selecting a Business Location Other Than Rent
Updated on
May 23, 2022

Real estate is usually the second or third largest expense item for companies.  Logically, then, many businesses focus on economics in a site selection process.  On occasion, however, a business will focus exclusively on the rent at the expense of other important variables.  There are other quantitative factors which also impact a business’ real estate costs, as well as qualitative factors worth serious consideration.

There are many factors to consider in determining its true costs to the tenant.  In addition to the base rent, tenants should consider the following variables in their site selection:

  • Rent abatement and rent escalation
  • Operating expense pass-throughs
  • Tenant improvement expenses and allowances
  • Options (renewal, expansion, contraction, cancellation)
  • Add on factor (rentable vs. usable square feet)
  • Relocation costs

In addition to the base rent, tenants should consider the following variables in their site selection:

Finding the Right Location

  • Location of existing and future employee base
  • Synergy with area’s business environment (particularly important for medical office)
  • Proximity to customers
  • Ease of access
  • Area amenities

Brand Visibility

  • What statement does the property and office make about your company?
  • Who will visit your office?  What conclusion do you want them to reach?
  • Will the facility’s image enhance or detract from your ability to hire quality employees?

Employee Variables

  • Do the majority of your employees live in a particular location?
  • Will your company lose employees as a result of relocation?
  • Which locations provide a sufficient employment base?

Businesses should retain a tenant representation commercial real estate agent to help with their site selection and calculate the true costs of each alternative (the true cost DOES NOT equal rent) and will ensure that important qualitative factors are also considered.

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