Friday, July 24, 2015

Commercial Real Estate Cube Space? So What?

Image Attribution: Raymond Handling Solutions
The Preview: As I previewed several buildings for a client tourrecently, I encountered an occupied building that was on the market for lease. This is common. When an owner is notified by his occupant that the occupant will vacate at the end of his lease, the owner's recourse is to market the space - during the remaining time of the lease - while the building is still occupied. 

The Debrief: As the occupant showed me around, we discussed the occupant's moving plans - timing, new space needs, reason for the move, etc. I will generally do this - that is, debrief with the occupant - as I need to know if the space WILL in fact be available OR if the owner and occupant are playing cat and mouse in an effort to effect a lease renewal. 

Does he need to move: What struck me as odd was the way in which the occupant utilized the space. Let me set the stage for you. 35,000 square feet of warehouse space with an interior clearance of 32 feet and fire sprinklers within the warehouse that would allow the occupant to stack his product to the rafters - but this guy was not using racks and was stacking his product on the floor of the warehouse on pallets. The floor space was consumed. But, what about ALL of the space between the top of his floor stacks and the ceiling - the "cube space" - LOST! 

It's a BIG Deal: Now, here is why this was a big deal. Presumably, this occupant had lived there for three to five of the preceding years. He had paid rent for the square footage of the building - remember the 35,000 square feet - for ALL that time. Because he didn't stack his product to the ceiling, he was, in effect, paying for much more space than he needed. When I asked him why he didn't store his products in racks - thus utilizing the cube space - his answer was, "he didn't want to go through the permitting expense of installing racks". Hmmm, so he would prefer to pay for three times more space than he needed? Certainly made no sense to me! I calculated what leasing the excess space cost him on an annual basis - it was on the order of $100,000! That will buy lots of racking and permits. Heck, he might be able to buy a new forklift as well. 

The Moral: So here is the moral. If you believe you are out of space, look up. With a bit of material handling creativity, you can find space you never knew existed - in the cube!