Determining Business Locations

Determining Business Locations BAM II -- Mr. Yates

Commercial Real Estate! • http://www.youtube.com/watch?v=WC0m8waS3tE

Selecting the right location • The three most important factors when investing in real estate are location, location, and location. • Although location is not the only factor to consider when investing in a business, it is certainly up near the top of the list. • And if you are a retailer that depends on daily walkup or drive-up traffic, it can mean the difference between success and failure.

Do you need visibility? • If you are providing a service that doesn't require any face-to-face meetings with your customers, such as a mail order service, then your location isn't too important because you are just a phone call, e-mail, or fax away. • If you are a retailer or restaurateur for example, you know that location is critical.

If your location is important… • In those cases where you know your business location will be important, you should be asking yourself whether you need to be in a high traffic, high visibility location like a shopping mall or the main drag in town. • These locations will be very costly and you will have to decide whether it is worth it and whether your business depends on it.

Who is your customer? • It is important to research the demographics of your intended customers for characteristics such as age, income, educational attainment, number of children, etc. • These factors should rank highly in determining your choice of a location. • Much of this information is available through the Census, which can be viewed at libraries or online.

Know your customers ctnd… If you are opening a business that can only draw its customers from the immediate area, and you are catering to an upscale market, you will not want to locate your business in a middle or low-income neighborhood.

Where are your customers? • Is your business serving only the local community or can you draw customers from out of your immediate area? • The wider the geographic area you need to draw from, the more it's going to cost you to reach them with your advertising.

From where are they coming? • If most of your business is local, then visibility and convenience issues are going to be more important. • You will want to choose a location with good signage and high exposure to walking and driving traffic. • You will want to ensure that you have adequate parking facilities.

Where is the competition? • Many businesses fail because they underestimate the competition. • Often, it is not necessarily the quality of that competition, just the mere presence of it. • You may think that you can drive your competitors out or at least steal some of their business by offering a better price or better service, but many businesses can breed an intensely loyal following of customers.

Competition continued… • For instance, you may be thinking about opening a Chinese restaurant in a town that doesn't have one. • Although you will be able to get business as a result of being in that niche market, you still have to compete with all other forms of food service, from fast food to gourmet restaurants. • If the town's population doesn't have the average income to afford eating out much, it may not be able to support the restaurants it already has and you'll be fighting a losing battle right from the start.

Selecting a Location • It can be costly and sometimes impractical to move. • Facilities in good locations generally cost more to buy or lease. This increases your overhead and narrows your margin of profit. • Consider how your location costs will factor into what you will have to charge your customers to make a profit. • The location should also reflect your marketing strategy. • Customers shopping for high quality goods and services generally expect a convenient and attractive location. • Customers seeking bargains may appreciate a simpler facility, knowing overhead savings are passed on to them.

Choosing a region of the country • Nearness to the target market • Availability of raw materials • The supply or availability of labor • Regional or state tax advantages • Local competition • Transportation systems • Quality of life issues

Choosing a specific site • The price of the land • Customer accessibility • Neighborhood conditions • Suburban trends • Zoning

Resources to help you choose • Bankers • Chambers of commerce • Economic development agencies • Commercial real estate agents • Trade associations

Selecting a building • Size or square footage - should be large enough to allow for future expansion • Age and condition of building • Fire safety • Efficiency of heating and air conditioning systems • Lighting • Restroom facilities • Entrances and exits

What about the ADA Act? • Compliance with required Americans With Disabilities Act (ADA) regulations is important as well.

Ownership – Buy or Lease? • As part of the selection process, owners decide whether they want to buy or lease an existing building or build a new one. • Because erecting a new building is expensive, most new businesses do not choose this option.

Ownership vs. Leasing • Leasing requires less money at first than buying, but the building owner can increase the price of your lease over time. • Ownership requires more initial investment but gives you more control over costs. • Ownership allows the building to be remodeled to meet the special needs of the business.

Office Space – Lease or Buy? • With ever-changing U.S. office vacancy rates and stock markets, it is uncertain what the future may bring. • A small business owner needs to carefully weigh the pros and cons of leasing or buying office space.

Pros of Office Space Buying • Fixed Costs: Locking in your commercial mortgage long-term can give your business clear, fixed costs. • Tax Deductions: The associated costs of owning and running a commercial space can provide expense deductions in the form of mortgage interest, property taxes and other items. • Additional Income: Owning your office can offer the advantage of renting out extra office space adding another source of income. • Retirement Fund: The prospect of owning commercial space and having the property appreciate over time, allows the owner to sell out and fund their retirement.

Cons of Office Space Buying • Lack of Flexibility: A new or growing business may experience unexpected needs in the future. • If your business continues growing, your owned office space may become inadequate forcing a sale of the property. • Upfront Costs: Buying commercial space will initially cost far more upfront. • There are property, appraisal and maintenance costs along with a large down payment and possible property improvement costs.

Office Space Leasing– Pro’s • Prime Property: A leasing office space option provides a business with the chance to rent in an area with a good location and high image. • If your small business is dependent on location and image, such as retail or restaurants, the leasing option is much more affordable. • Free-up Working Capital: With your money not tied up in real estate your business can respond to opportunities in the market. • More Time: Any type of ownership comes with headaches. A leasing option affords the time to focus solely on running your business.

Office Space Leasing– Con’s • Variable Costs: With a leasing option you may be subject to annual rent increases and higher costs at the time when your lease expires. • No Equity: While leasing you will be funding someone else's retirement with your lease payments. However, owning requires you to get involved in the property management business.

Trends in Locations • A growing trend is condominium office space, in which you buy office space within a larger building. As owner, you can remodel your space. However, if you move, you must sell it as if it were a building. • Some communities have business incubators. • A business incubator is usually a building or an area designed to nurture small companies and help them develop. • Some offer classes and opportunities to get free business counseling. Others may offer government subsidized rents or reduced taxes. • Incubators can be a good compromise between running a business from home and leasing or buying facilities.

How much does leasing run? • Rates for commercial property in the area ranges from $.65 - $1.15 per square foot for a gross lease. New building space generally leases for $1.15/sq. ft. (In Sweet Home Oregon) • Downtown Jacksonville FL – $25-28 sq/ft. • Typical business sq/ft 1,500 – 7,000 sq/ft. • Averages: $2k-$7k small town, $40k and up big city - per month

$18.00 - $24.0032,848 SFOffice Leasing continued… • http://www.bizjournals.com/bizspace/austin/results/simple?use_type_id=1&sale_lease=lease Austin TX $7.20 1,282 SFOffice $16.00 - $40.005,353 SFOffice

Links • http://video.google.com/videoplay?docid=3127439297026682723&q=business+leasing&hl=en • http://video.google.com/videoplay?docid=-6414675309842570831&q=business+leasing&hl=en • http://video.google.com/videoplay?docid=-2559707438894684900&q=business+leasing&hl=en

Determining Business Locations