Back in 2003, Commodore Aviation realized it had outgrown its maintenance repair and overhaul (MRO) facility next to Miami International Airport. It’s a classic situation most growing companies will eventually find themselves in, except that the option to expand in its current location was not on the table. There was simply no room anywhere on the airport grounds.
Since the company, a subsidiary of Israel Aircraft Industries International (IAI), was forced to look for a new location anyway, they decided to dramatically expand the search area well beyond the Miami area.
The driving factor from the very start was the availability of an existing facility. Commodore Aviation, now called Empire Aero Center, looked at more than a dozen former Air Force bases throughout the country before eventually choosing the Griffiss Business and Technology Park in Rome, N.Y.
“There was a facility available,” said Brian Olsen, president of Empire Aero Center. “Plus, the hangers were renovated by the state of New York.”
The newly renovated facility, located on the former Griffiss Air Force Base, consisted of 450,000 square feet of hangar and support shops, including a 50,000 square foot, EPA-approved aircraft strip and paint facility.
Conventional wisdom has it that when a company undergoes a major expansion or relocation, it invariably chooses to build a brand new facility on virgin farmland. In fact, the opposite is usually the case. Most site location searches result in the company choosing to move into an existing building.
“My impression is that the overwhelming majority [of expansion and relocation projects] go into existing space,” said Kate McEnroe, president of Kate McEnroe Consulting, an
Atlanta-based site location firm whose list of clients includes Aetna, Sprint, Charles Schwab, Convergys and Caterpillar.
“The exception seems to be folks who are moving to establish a consolidated corporate campus situation.”
What is the driving force behind that trend?
When you ask the experts what they think is the single biggest change in the site location process during the past decade, nearly all of them will say that it is the dramatically compressed time frame in which these decisions are made.
Even as late as the 1980s, it wasn’t unusual for a company to spend 12 to 18 months evaluating a variety of cities before eventually choosing one for a future facility location. Now, those decisions are often compressed into a three to six month window. Why? Because time is money.
“The importance of finding an existing building in the location decision is driven by the need for speed to market of the business operation,” said Jonathan Sangster, senior managing director of global corporate services for CBRE Consulting. “The quicker the need to get to market, the more likely that an existing facility is required.”
For that reason, it’s important for your site location team to have a good feel for where they’re most likely to find available real estate at reasonable prices.
That’s why, for the past nine years, Expansion Management has presented its annual ranking of the Top Real Estate Markets.
This evaluation, however, is not geared toward real estate investors. On the contrary, it is for business executives who are looking for real estate with the intent to occupy, not to invest. It’s for the person who is looking for industrial space — or office space — at the right price in order to open up a new office, manufacturing facility, distribution center, call center or whatever else their growing company needs.
This year’s rankings are based on data from Grubb & Ellis’ 2nd Quarter 2007 “Office Market Trends” and “Industrial Market Trends,” as well as from R.S. Means’ 3rd Quarter 2007 “Construction Cost Estimator” for new construction data.
Together, we have analyzed this data and come up with this year’s Top 20 Real Estate Markets for expanding and relocating companies. These cities generally ranked high in terms of both availability and price.
Topping this year’s list is Columbia, S.C., followed by Grand Rapids, Mich.; Greenville, S.C.; Oklahoma City, Okla.; and Kalamazoo, Mich. Click here for a complete list of the Top 20 Real Estate Markets.
Putting the Numbers into Perspective
Remember, this list is not geared for the real estate investor. In fact, since it values high vacancy rates and low lease rates, you can almost say that it is the mirror opposite. This list takes the perspective of the tenant or user-buyer, where low cost and high availability are a good thing.
In general, the higher the vacancy rates, the greater the number of properties you’ll have to choose from and, consequently, the greater the likelihood that you’ll find something that meets your needs.
However, it’s hard to imagine someone looking at this list and deciding, for instance, that they will locate their next operating facility in Columbia or Grand Rapids simply because those cities offer the lowest costs and have the highest availability.
That’s not the point. Any city that makes the top 20 list is generally affordable and probably would survive your company site search’s initial real estate cost cut.
Rather, it’s probably more likely that the cities toward the bottom of the affordability list — like Los Angeles or Las Vegas or Miami — would be downgraded based on high cost than it is that cities on the top will be selected simply because of low real estate costs.
At this stage of the site search process, when you’re looking at overall real estate costs throughout various metro areas, you are still in the screening process, looking more for cities to eliminate in order to pare your list of potential locations down to a more manageable number.
Later on, once you’ve narrowed your search down to two or three cities, is when you would actually look at specific pieces of property and their associated costs.
Simply looking at overall vacancy rates will not give you the information you need, though. You have to look beyond that to the vacancy rates within the major sectors of commercial real estate (i.e., office or industrial, suburban or central business district). After all, if you’re looking for industrial property, the vacancy rate for downtown offices doesn’t really matter.
Still, that doesn’t mean that you can’t draw general conclusions about the cost and availability of real estate in a particular metro area.
Choosing Between Existing vs. New Facility
IAI and Empire Aero happened to be looking for 747-capable aircraft hangers adjacent to a 10,000-foot reinforced runway as the lead element in their facility location search. For most companies engaged in a site location search, however, their real estate needs aren’t quite so specialized.
“The two most important factors in choosing between an existing and a new facility are speed to market and the complexity of the business operation,” CBRE’s Sangster said.
Are some types of facilities more likely to accommodate an expanding or relocating company?
“Office and flex space with large floor plates and free parking is easier to accommodate reuse than smaller spaces,” McEnroe said. “It’s relatively easier to find a new tenant for a former call center — that is, not a ‘could be’ call center building, but rather a building that already is wired, furnished and has a local work force.”
According to Sangster, flex space that can be adapted to either office or light industrial uses is more easily suited to reuse. This generally involves small- to mid-sized buildings with a higher ceiling height that could be adapted for office, light manufacturing or small volume distribution (or a combination of these).
Will the shortage of real estate properties keep a city from even being considered by a company in the site location search mode? No, usually not.
“Finding an existing building can be important from beginning to end but, because office space is somewhat generic, it rarely is a reason for a community to fail in the screening stage of the analysis,” McEnroe said. “That generally only happens in very small real estate markets.”
Still, given the fact that the vast majority of corporate site location searches result in the company going into an existing facility, lack of inventory is not a good thing.
Choosing Between Downtown or Suburban Office
In most cases, it’s either office or industrial space that corporate site selectors are looking for and, if it’s office space, it’s important to decide, in general, which submarket to focus on: central business district or suburban.
The question becomes, then, are there benefits to choosing downtown vs. suburban office or vice versa?
According Sangster, there are five general criteria that typically come into play when deciding whether a company wants to locate in the central business district or in the suburbs.
Heading the list is the corporate culture (i.e., the company’s self-image, as well as its tradition of community and local business involvement); proximity to executive housing; proximity to the airport; vitality of the downtown area compared with the other business centers and submarkets; and proximity to a qualified work force.
McEnroe said that a vibrant mass transit network is also a major factor when deciding between going downtown or to the suburbs.
“In a very few places in this country, downtown offers a centralized recruiting position with access to mass transit, but it has to be a transit system used by all types of people, not just people who can’t afford a car,” McEnroe said. “Suburban usually means free parking, possibly better access to labor pools, maybe to the airport.”
Don’t forget the marketing value of a highly visible sign on the side of a building.
“Some companies choose to have interstate visibility for marketing purposes; others choose to be more secluded because of the nature of the products or emissions,” said Michelle Harris, a project consultant with CH2M Hill in Nashville, Tenn. “Others want multiple modes of transportation to reduce the risk or expense of relying on one particular mode of transportation or because of raw materials utilized. All of them want to be easily accessible to their required work force and, in most cases, their suppliers and customers.”
Commercial Air Access
Proximity to an airport can also be an important factor when deciding where to locate.
“Commercial and passenger air become critical when locating corporate headquarters or flagship facilities,” Harris said. “Corporate headquarters will house executive management wanting ease of travel for both personal and business engagements.”
Taking account of your company’s typical travel destinations — subordinate offices, key clients — is clearly most important, but it’s not just outbound air travel that you need to consider. Don’t forget your inbound travelers.
“Business conducted at these types of facilities typically includes vendor or staff travel which can become expensive in an area farther from an airport or with very few flights meeting their requirements,” Harris said.
Clearly, it’s also important to make sure that airlines and routes match up with your company’s typical travel destinations.
“Commercial passenger access has been raised by a number of our clients,” said Mary Faye LaFaver, Mid-Atlantic director of Ernst & Young’s business incentives and credits services practice. “In some cases, they are looking for specific non-stop international flights to accommodate corporate executives or key clients.
“In others, they have corporate executives and a sales force that moves into and out of the corporate headquarters to plant sites with frequency and they require access to a variety of long distance, non-stop domestic flights to move those people with efficiency,” she added.
Sufficient Available Parking
Another often overlooked asset is parking, especially if you are considering a downtown location in a city not well-served by public transportation.
We all want to feel like we’re good stewards of the planet and want to do our bit to prevent further global warming but, let’s face it, most of us are not willing to add significantly more time to our daily commute.
“Central business districts that are challenged by limited parking for headquarters operations can be a filter in the location decision process, particularly if the parking is costly to employees,” Sangster said. “A suburban office setting with adequate and free parking could be a differentiator. In general, however, parking would not be weighted nearly as high as other decision criteria.”
That’s not always the case, though, particularly if the facility will be occupied by hourly workers engaged in shift work. It is also a factor for white collar workers as well.
“Parking is a fatal flaw if not sufficient,” McEnroe said.
This is a problem that does not lend itself to simply drawing a circle around a 10-block radius and counting the number of parking lots and spaces that happen to fall within that area.
“For new users, usually the concept of shuttles from remote lots doesn’t work,” McEnroe said. “That’s used by people who are already in place and have outgrown their parking.”
So, where does all this leave us?
“Each project is unique, and each market is unique,” Sangster said. “Finding the optimal solution that best aligns with the factors that are important to the client is the key.”
In other words, it depends upon the situation.
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