Pursuing aggressive expansion of any business can be full of opportunities and pitfalls. When that expansion requires leasing more real estate, the challenge is often compounded, since it is usually the second highest operating expense (after personnel). As with making the wrong hiring decision, the wrong real estate decision can have long-term ramifications. So whether you need a distribution center, retail location or sales office to support your expansion, it pays to consider the following steps before making any long-term real estate commitments.

Do the Homework
Some companies attempt to expand too quickly and fail to compensate for both their customers and competitors. Understanding the habits of both parties is especially important when selecting real estate. Matching demographics of clients and customers should be a top priority, including how to be most accessible to them. Also, pay attention to your competitors. Understand where they are located and why. For example, if they are in an inadequate facility, or a hard-to-reach location, learn from their mistakes. Depending on the type of business, being as close or as far away from competitors may be an advantage.

Understand Local Real Estate Markets
Before making any real estate commitments, it’s best to understand economic and market trends. A knowledgeable real estate adviser will understand the markets and be able to forecast potential for change. Is it a buyer’s or seller’s market? Is it expected to change soon? Leases must be configured to compensate for these conditions. If a specific market is down and rents are cheap, it might be best to target expansion in that location first in order to capitalize on the lowest real estate rates possible. A possible money-saving option in larger markets is to sublease space. This allows for market entry at a lower rate to determine whether an expansion would be profitable.

Legal Matters
Cooperation from the legal team is the most important step in the process. The true Achilles’ heel of any deal is a bogged down legal process that delays the lease signing. Timely responses from lawyers are important to ensure that the lease is secured as quickly as possible. If market fluctuation occurs while a lease is under legal review, it could become obsolete before the approval process is complete. Ideally, to be most efficient, your real estate adviser should be a project manager for the legal team to ensure there is a coordinated effort.

Sealing the Deal
If market conditions are favorable, a knowledgeable real estate adviser will provide the “muscle” to negotiate agreeable lease terms and concessions from landlords, including reduced or free rent, termination rights, tenant improvements and a waived security deposit. It is important to be proactive in securing a lease. If possible, working on a 12- to 14-month timeline is best. If the timeframe is any shorter, and a landlord knows that there is no flexibility, negotiations will not be as favorable. Without a real estate strategy in place, and the experience to execute it, an aggressive business expansion could end with less-than-optimal results. The location and cost of real estate can have a substantial impact on future success. That is why a well-thought-out strategy and the support of knowledgeable real estate experts can often be the difference in whether a business expansion succeeds or fails.

Eric W. Beichler is a managing partner of Mohr Partners, a Dallas-based international corporate real estate advocate. He can be reached at (972) 239-0394 or via e-mail at Eric@mohrpartners.com. For more information, access www.mohrpartners.com.