By James A. Schnur, CCIM
President and Designated Managing Broker
Integrated Real Estate Solutions
Choosing the next location for your business takes many considerations into account. In the previous two articles in this series, I looked at the human factor —size and availability of the labor pool and quality of life issues—and the influence of an area’s infrastructure of transportation accessibility, technology, and economic development support.
In this final installment, I want to address the fiscal factors— some of the costs associated with this new location.
Lease versus own and new construction
You may consider three options for the acquisition of your new space: lease, buy an existing building, or build. The timing of your move might dictate which choice will fit. A tight timeframe that doesn’t allow for new construction redirects your choices to properties that are available (or soon to be).
Building your own facility is a subset of ownership, and owning your commercial real estate has pros and cons. Companies that are experiencing rapid growth probably need the flexibility that leasing provides. Your decision will depend on how you want to leverage your capital investments. Please read To Lease or To Buy.
If you’re planning to lease or buy, availability will play into the cost. Some areas are experiencing high demand and low supply, which drives up the price. Office markets vary greatly from sub-market to sub-market. The central business district in Chicago, for example, at the end of 2016, has an office vacancy rate of approximately 10%, but if you move a bit farther out to suburban Chicago, that figure doubles, to about 20%.
According to an article in Area Development Magazine, vacancy rates for industrial properties have reached an historic low. Distribution centers average 8% nationally, but regions like Chicago, eastern Pennsylvania, and California’s Inland Empire are even tighter when it comes to warehouse and distribution center availability.
When you have the time to plan for new construction, you gain more flexibility in terms of the building design. However, construction costs can escalate with the rise in costs for labor and materials. Land costs can also be volatile, depending on the use and location.
Your occupancy costs, on average, represent a significant portion of your overhead, but when making the relocation decision, you still need to work with someone who understands how to maximize cost control and keep the relocation plan on track. Whether you rely on a qualified member of your team or outsource to a professional, be sure that the priorities and limits are clear to the person in charge.
Bottom line on labor
Labor represents a much higher percentage of your operating costs than the building itself. In my first article, I addressed the issue of finding a labor pool that meets your needs. The level of those needs will factor into your labor costs.
While evaluating a location, also consider the competition for your labor pool. If you have high demand for people with specific skill sets, you might have to pay more for labor. You also need to understand the role of unions, and the availability of local- or state-funded workforce development and training programs, because these costs impact your labor expenses.
Tax rates by state
The corporate tax rate varies from state to state. Nevada, Ohio, Texas, South Dakota, Washington, and Wyoming have no corporate tax. At the other end of the spectrum, Connecticut, DC, Iowa, Minnesota, New Jersey, and Pennsylvania all have corporate tax rates of 9% or higher. In addition to corporate taxes, the rate of property, sales, excise, and payroll taxes may also influence your choice of the state where you will relocate.
Who wants your business the most?
State and local incentives are offered by those areas that are actively cultivating economic development. A knowledgeable agent can find those regions and even negotiate benefits like tax credits and low-interest financing or even development grants. Regional and state economic development corporations might help with infrastructure development, reduced energy costs, permitting assistance, and training. These costs can add up, so even a location in an area with higher rent, for example, might become the best value when you calculate a strong package of financial incentives.
Corporate relocation is a complex task. From understanding every factor in the decision-making process to finding, negotiating, and managing the move, don’t underestimate the importance of paying attention to the details. A single misstep can cost you in delays, costs, or even committing to a location that won’t work for you in the long run. Integrated Real Estate Solutions has in-depth knowledge and experience in corporate relocation. Let us give provide detailed evaluation, analysis, and options, and expertly guide you to the right outcome.
Integrated Real Estate Solutions, Inc. provides clients with the in-depth knowledge and experience that is critical to determine the right path to your next move, lease renewal, or strategic repositioning of your real estate portfolio. Contact us or call 847.550.0160 today about your needs, and put our success to work for you.