Office/Retail Space: Is Now the Time to Move
With the tough business environment of the last few years and the difficulties of the real estate market, in many locations space is cheaper than ever. But is it good space for your business? How do you evaluate what is a “good deal”?
By Jeffery Clack, Score Accredited Business Counselor, SCORE NE Mass
Whether you are an existing small business or a new business starting up, the cost of your facilities will be one of your highest expenses. With the tough business environment of the last few years and the difficulties of the real estate market, in many locations space is cheaper than ever. But is it good space for your business? How do you evaluate what is a “good deal”?
Key Elements to Making a Site Selection
Location: Many business owners start out looking at space close to home or in an area they know well. This could be a good approach.
Another more thorough approach would be to do some research on your potential or existing customers. Will they be coming to your location? Do they come to your office or store or do you go there? How close is their location to your anticipated site? Wouldn’t you want to be closer to your best customers since they offer both the potential to grow your business through their increased purchases and their word-of-mouth recommendations? After all, they are your best marketing tool!!
Here are some location questions to ask yourself:
- If yours is a retail location, how important is walk-in traffic? If you own a food business, this is likely very important. If you operate as a specialty goods retailer, say as in fabrics or printing, a Main Street location may be more expensive than necessary since your customers will be coming to you.
- Most importantly, when shopping for space, check out both prime and less expensive space. From the costs of these locations, you need to make realistic estimates of your sales, expected profit and cash flow potential from each location. Look beyond just your envisaged sales income.
- Competition: where are your competitors locationed? Is it best to be close like McDonalds and Burger King, or far apart? Again, it depends on your business and the costs of the space. Most likely, you do not want to be close to a direct competitor. Especially if they have a prime location and you do not.
- Multiple locations: depending on your customer profile, you might be better off in two different locations – each for 2-3 days a week – than in one location. Rather than being the lease owner (rent payer), since many retail businesses are now struggling, you could sub-lease a small part of an existing location in two different sites for a few days a week.
- Size; how much space should you have: We advocate starting out small to prove your sales volume before you take on a higher level of space related expense, especially if you can get a month-to-month lease as a starting point. Then you can move to a larger space as your sales level, space needs, and staffing demands require it.
- Traffic: Before you make any decision on retail space, you should research the local traffic level for that site.
- Spend an hour or so in your car counting the number of people that walk into existing stores next to the space you are evaluating. Can this level of traffic support the sales level you are forecasting? Can it support the cost of the space?
- Also research the traffic at a competitor’s site. How many people walk in the store in an hour? How many come out with a bag (a purchased)? That sales and traffic level is for an established business – it will take your site months to approach that performance. Can the location you are evaluating still work based on that competitive knowledge?
Terms: Is the lease month-to-month or a year or more? How many years? More years may lock in your costs or specify a yearly cost increase maximum (which could be good for an existing business that has good knowledge of their sales level). But, a new business may not succeed. In this situation you are better off having a short lease with an option to renew so that you can get out of the lease more easily. Plus, lease terms can vary substantially regarding whether utility costs (electric, gas, water, etc.) are included or billed in addition to your lease costs. Make sure you know which way your proposed site works.
Capital improvements: Some landlords will insist that you pay for improvements. If they are specific to your business and would solely benefit your business, this could be fair. Though if you are required by town code to add a restroom, having a restroom in that space will make that space more attractive to future tenants. The landlord should pay all or part in cases like this.
Negotiation: You always want to have two or three locations under consideration when you start negotiating the terms of your lease so you have points of comparison and leverage to say someone else if offering you a better deal. And you definitely should have a lawyer review the lease before you sign it or lease related documents. In today’s market, some landlords are willing to negotiate and some may not. For start-up businesses, see if you can negotiate a month or two free at the beginning as it will take a while to grow your sales. Or you could negotiate a lower rate for the first 3 months and a higher rate later in the year so the landlord gets the same amount of rent while you get a lower expense when your sales are the lowest.
This article provides a broad outline of the elements for your space considerations. We suggest making an appointment with SCORE for a review of your needs and research. This is a big financial commitment and you want to be sure that you have covered all the bases before you make a decision.