Wednesday, March 27, 2013

The Yin and Yang of Moving

I provide Location Advice to owners and occupants of industrial buildings in Southern California. Generally this location advice involves a move of some sort. Today, I want to discuss the relocation of an occupant from an owner's point of view AND from an occupant's point of view. Recently, I wrote about the cost to originate a lease from an owner's perspective. You can read that post by clicking here. The net result, using the assumptions contained in that post, was that a new lease will cost the owner 20-25% of his future cash flow.

As the market in SoCal has tightened, and occupants have fewer alternatives, I believe the origination cost will trend toward the lower end of this range...primarily because buildings are selling and leasing quicker AND concessions are less plentiful...but re-tenanting a building is expensive. From an owner's perspective, it is far easier (and cheaper) to retain a tenant than find a new one...The Yin.

So what about an occupant relocating to a new industrial building or office suite? How much does a move cost? Simply stated, it artful dodge but there are sooo many factors involved, that the cost is tough to quantify. I will, however, endeavor to identify some of the major areas involved in the move...stay tuned.

A recent move into a 28,000 square foot building by a light manufacturing company cost approximately $100,000. Approximately 10 medium sized machines were relocated along with inventory, racking, and approximately 3000 square feet of office space and 20 employees.

Machinery-number of machines, size, weight, calibration (or recalibration), electrical hook-ups, UL rating, etc. One of my clients received a surprise when relocating machinery that was not UL rated...even though the machinery was new and had the European equivalence of a UL rating. The city my client moved to required my client to UL rate the machinery at a cost of $7500.

Special Purpose Improvements- Office space, paint booths, electrical distribution, freezer/cooler space, food processing space, racking, conveyor lines, clarifiers, etc. In Southern California, relocating a paint spray booth requires several approvals...Air Quality Management District and city. If you plan to stack over 12 feet...check the sprinkler may be in for a surprise!

Licensing-business licenses,  ISO certifications, spray booth emissions credits, racking permits, building permits, certificates of occupancy...all may be required.

Office-Any new office space will require building permits...which take time...which is money.

Infrastructure-Plumbing, sewer, water, electricity, Internet, cabling. One of my clients re-located into an office space that had inadequate Internet connectivity. We fortunately did our diligence, were aware of the issue, and were able to negotiate an allowance from the owner to cover an upgrade.

Physical move-According to Ron Larrieu of Penn Corporate Relocation Services, moving the contents of an office space can cost approximately $50 per employee or $1-$2 psf. This cost can be added to the cost of moving the "shop space" which includes the above items.

Miscellaneous-business cards, stationary, note pads, promo items, social media, websites, employee disruption, business interruption...all costs that need to be considered.

From an occupant's perspective, it is is far easier and cheaper to renegotiate an existing lease or remodel an owned location than to relocate...The Yang

My advice to you if you are considering a move:

Read my recent post entitled we have outgrown our location but don't want to move.

Analyze your re-location alternatives carefully...number of buildings on the market, pricing, concessions, etc.

Engage a professional relocation specialist such as Penn Corporate Relocation Services to analyze your location and provide a moving budget