Finding Your Ideal Commercial/Industrial Building - Part III
Welcome back! Here we discuss size and its impact on your choice:
Size does matter!
Economy of Scale (ES): It is assumed that as firms increases in size, they can become more efficient. The greater the quantity of goods or services produced, the lower the per-unit fixed cost because the start-up, operating and overhead costs are spread out over a larger number of goods. So as a company grows and production units increase, they will have a better chance to decrease their unit costs, and so, more rapidly grow their bottom line.
Local / Regional Political Sway: Large footprint tax paying companies, that employ a significant number of local residents, can garner a greater say in local policy changes that may impact approvals, permitting and operating costs.
Business Stability & Talent Attraction: A larger employee base makes operations less reliant on a given individual and cross training may be used, to ensure business continuity. High value employees are often attracted to large operations because of opportunity to get promoted, a perceived stability of employment and the potential variety and opportunities to learn and grow.
Ability to Diversify & Increase Income Streams: A larger square footage / lot size allows companies that have a greater portfolio and/or anticipated growth to diversity hence protecting the company from variability that might significantly harm a smaller single-product or service operation.
When you are looking for a new building, whether it be for commercial purposes or for personal use, one of the main considerations must be “How big do I need?” In order to properly answer that question you need to not only consider what size you need now but also what size (or other considerations) might be required in the future. Let’s take the example of a couple (with no children) looking for their first home. A small 2 bedroom condo may make a lot of sense as space is probably not an issue, there is no need for a back yard for the kids to play in, and the cost is much lower than most other alternatives. Now skip forward a couple of years – kids may already be part of the scene or at least a real possibility, the condo is starting to feel a little cramped and you are looking at buying into the suburban dream. But moving is a hassle and surprisingly expensive as well. You can put it off but eventually the pain of staying outgrows the pain of moving and you are back in the market again.
But what if we are talking about a commercial building?
Sure maybe the building fits your current requirements but what about future growth?
Can you absorb the required space into the existing structure?
Can you expand the existing structure either into adjacent space or into surrounding unused space?
Is shipping and receiving areas expandable to deal with future growth? If this includes railcar or tanker access how many can be delivered and laid down now and in the future? Is that expandable?
Are utilities available as you grow? Do the supply lines, power and gas grids allow for expansions and at what cost?
So if you get too big for this building why can’t you just pick up and move?
Short answer, of course you can. But aside from the cost what other pain might you have that would not have affected our earlier, hypothetical, residential sale?
If you are a retail store will your customers follow you to your new address?
If you are Industrial, moving not only includes your entire infrastructure (machines, tanks, inventory, etc) but also a disruption to your production schedule, possibly quite significant. This is going to be a problem for your customers and will need very careful management.
Moving will mean a total re-evaluation of all your processes from supply through production and storage to shipping. There will be many necessary changes that will need to be implemented. (Actually, this is probably a good thing in the long run even though expensive and often a pain)
Depending on where you move to, you will likely have a whole new municipal government with potentially different regulations to deal with. (This also includes your relationship with service and utility providers.)
The Bottom Line
The advantages of making greater future profits can be lost in capital tie-up, slow ROI or return of investment (on real estate, structure costs etc.), market uncertainty / changes and the potential extra time needed to go-live. So, a balance needs to be reached based on your current and future anticipated needs.
Before you decide what size and layout you need in any new building you need to not only consider your current requirements but also any foreseeable future requirements. This is especially critical when considering a commercial or industrial building as the cost and pain of moving (or not moving) may be more than you want to deal with. This is why it is so important to deal with professionals that can understand your requirements and help you to make the very best possible decisions with the information you have available to you.
Stay tuned for part IV – Key Factors in Cost $ $
Contact us when making your next move!
Edward Drennan, P.Eng. 30+ years Industrial / Commercial Experience
Your Trusted Partner in Real Estate
Ed White, CPIM CIRM CSCP CPF 6sigma – Jade Trillium Consulting
Making processes & organizations more effective
Not intended to solicit buyers and sellers currently under contract with another brokerage