Renew versus relocate Featured

7:00pm EDT November 24, 2006

Your lease expires in 12 months and it’s time to decide where you want your company to be located for the next 10 years. You have a solid work force and good cash flow. Do you stay where you are or find another building?

“When representing tenants, we tend to look at the company’s current economic situation and what other options exist in the market,” says David Todd, first vice president for CB Richard Ellis. “Maybe it’s time to see what someone else is offering.”

Smart Business spoke to Todd about how to tell if renewing a lease or relocating is the better choice for your company.

How does a business owner know if it’s better to renew or relocate?
First, you analyze the market. You look at vacancy rates in your current building as well as areas that may offer your company a strategic advantage by relocating, such as proximity to clients, vendors or amenities.

Next, a broker can determine incentives for each of the different locations — including the building you currently occupy. Your landlord won’t always want to offer you as aggressive a deal as he would offer a new tenant because he knows that moving costs money.

You also need to look at sublease options versus direct-lease options. There may be a great sublease available from a large company downsizing, merging or relocating to a more suitable building.

Finally, you compare proposals from the relocation options to what you pay at your current location.

Another option is looking at the economics and affordability of purchasing a building or a build-to-suit (building not owned by you but built specifically to accommodate your company’s needs, whereby you lease the majority of the building). Over 10 years, you may see great appreciation and the tax benefits of ownership.

Signals that it may be time to purchase a building:

You’re a growing business and cash flow is great

You know that you’re going to be around for at least 10 years and that your employee base isn’t going to shift too much in either direction

The current owner of the company is in a position to purchase a building and lease it back to the company.

Does it make sense to upgrade or downgrade a space?
You have to ask yourself several questions before you make this decision, questions that are based on the needs of the business. Are clients coming to your office, or do you mainly go to your clients’ offices? Is the company office-driven, cube-driven or an open atmosphere? Has your corporate culture changed as the result of a merger or acquisition? Is your work force getting younger and more trendy, or is it mostly suit-and-tie?

Other factors include whether you need to expand or contract your office space based on the current financial situation of your company. Does technology drive your company, and does the current building have the technological capabilities it needs? Is there a strategic need to be in a higher profile building? Are you now a public company? If the company’s been around for a while, do you want your name on the building? Do you need to be close to certain clients, such as the largest law firm in the area or the headquarters of a certain company? And, finally, what are the demographics of your work force? Are your people having traffic issues and do you need to be close to public transportation or the airport?

If a company is growing rapidly, when does it become apparent that it needs to move to a new building?
If the company has expansion rights or expansion options, then it may not need to move at all. Expansion rights — part of the original contract — give the company the right to expand into an adjoining suite or onto adjoining floors. If a company has 10 floors and expansion rights for two more, those floors must be made available when the company states that it wants to exercise its expansion rights. With expansion options, a company has the right of first refusal on adjoining space as it becomes available.

Strategically, if a company feels the need to re-brand itself and raise its profile, a new location can provide somewhat of a catapult for accomplishing that initiative.

To get you to stay in your current building, your landlord may offer you the option to relocate your growing company to a larger or more prestigious space in the building or move a smaller company to another floor in order to keep you from leaving. This creates a ‘winwin’ for both parties.

DAVID TODD is first vice president at CB Richard Ellis in Brokerage Services. Reach him at (404) 504-7916 or david.todd@cbre.com.