While writing my INBiz article for the Indiana Economic Development Corporation last week, I did some informal research to better understand the primary reasons businesses relocate facilities.  My informal research caused me to look back at the businesses I’ve worked with during the seven years I was employed by Duke Realty Corporation and the last 15 years since starting my firm, Carmen Commercial Real Estate Services.  This process brought to light some interesting observations that I thought I would share over the next week or two.

First, there seems to be a direct correlation between a company’s growth and the level of need it has for assistance to manage the business’ real estate strategy, planning and events, such as complete relocations or facility expansions.  What I found was that in general, businesses that are relatively static, stable, and simply aren’t growing, seemed to take on more of the responsibility to manage real estate leases, facility actions, etc. themselves.  On the other hand, businesses owners and managers that I would qualify as “growth oriented” seem to need, or are more willing to bring in outside support for their real estate needs.  I don’t think it stops with the real estate.  It seems that these same “growth oriented” firms utilize a broader scope of outside professional services.

I attribute the greater need for assistance of the growth businesses to a number of characteristics.  Maybe first and foremost is a lack of in-house resources to perform duties related to managing commercial leases and facilities.  Why do they lack in-house resources?  I don’t think there’s any science here.  These business are growing, or trying to grow, and its human capital is dedicated solely to fulfilling its core objectives.  In other words, employees of the company are focused on meeting company objectives and any effort directed to ancillary duties simply dilutes the company’s ability to meet its objectives.

I’ve found that employees within high growth businesses usually don’t have a lot of time to allocate toward duties that are not essential to meeting company objectives and creating value.  Further, taking people away from their day-to-day duties to perform work that is outside their expertise not only reduces company productivity, but also produces a lower quality of work from people ill equipped to perform this work in the first place.  Some of these duties might be real estate cost analysis, negotiation of facility leases and building operating expenses with landlords, property searches and evaluations, construction planning / pricing, and relocation project management.

Therefore, the theme within these companies seems to be focused on the business objectives, while outsourcing all other duties to outside professionals.
In the upcoming week, I’ll post more key items that I’ve found in my research about growing businesses.

When you, as a business owner or manager, hire a commercial real estate broker to represent your business in its search and negotiation for office or warehouse space, the above question: “What do you need” is often the first question you’re asked by the commercial broker.  Needless to say, the question is often received with surprise and perplex.  More often then not, the commercial tenant doesn’t know their needs as it pertains to office space.  Further, the business may have naively hired the broker to help them identify space needs.

During my 23 years of leasing all types of commercial real estate, but specifically Indianapolis office space and Indianapolis warehouse space, as well as representing tenants throughout the US, it is not uncommon that business owners and managers are not aware of their specific needs for commercial space. Additionally, many businesses have hired a broker to help them uncover some important questions about their future office space.  Ironically, commercial real estate brokers, including me, are not equipped to uncover these needs, unless of course, the broker was trained in space planning and design.

When my clients lease Indianapolis office space or warehouse space, unless they have a very clear understanding of their needs, I will recommend their hiring a commercial space planner and / or designer to help with a needs assessment.  In fact, this step has become so important, my firm, CARMEN Commercial Real Estate Services, as a service to its clients, has a project manager and designer on staff to guide clients through a programming process and needs assessment.  Until the business’ needs are identified and clearly defined, I cannot effectively perform my work.

As a further note on this subject, you should beware of the commercial real estate broker that feels compelled to first ask its client:  “What do you need?”  You have to ask yourself if this is a professional that is willing to do all of the ground work that is necessary to understanding your business and its needs.  Or worse, is this broker more focused on getting your business to a closing, as opposed to providing your business with a valuable service.

Visit our project management post.

A talented commercial real estate broker is worth their weight in gold, unless of course, the broker is packing on a few extra pounds as I am currently. In general, I’ve found that when a broker represents a business in its lease negotiations, the business will save approximately 10 to 25% purely on the economics of its lease occupancy cost. These savings are gained through rental abatement, above standard tenant improvements, and moving allowances. Further savings are incurred by a business that utilizes a commercial broker through time savings and, in the cases of a firm that provides clients Project Management services, through efficiently managing a relocation and procurement of furniture, fixtures and equipment

Most businesses conclude that it makes a lot of sense to bring an expert on the team and engage a broker for the reasons I identified in my earlier post, Part II – Why use a Broker.. In the Indianapolis commercial real estate marketplace, where Carmen Commercial Real Estate Services is based, approximately 98% of all transactions that occur in the Indianapolis commercial real estate marketplace involve a broker representing at least one, but usually all, of the parties involved in the transaction.

Once a business has determined that it will engage a broker to represent the business in searching for a new office or simply to renegotiate an existing lease, the question then becomes how to choose the right broker. Making the right choice can mean a pretty dramatic difference in the project outcome as measured in lease savings and minimizing the interruptions to a business..

Over the coming week, I’ll provide you with criteria and explanations that should be helpful in selecting a broker to represent your business.