Shortage of Space - Now What?

Image Attribution: www.gograph.com 

Two weeks ago, I got my Star Trek on and discussed space - the final frontier. If you missed the blast off, no problem. You can quickly catch up by clicking here. Follow the link below to view the article.
 
Rent, sell or buy: How real estate values are factored
https://ocregister-ca-app.newsmemory.com/?publink=13f98ef4d_13482ff
 
Ok, now that we’re back up to warp speed, allow me to continue our exploration by discovering ways to overcome the acute shortage of manufacturing and logistics buildings in our market.
 
As previously mentioned, a high demand for industrial space - fueled by the e-commerce boom - coupled with a lack of supply has fostered a game of availability musical chairs. There is simply not enough space for the need. Therefore, we must be terribly creative to fill the void.
 
Many times, the solution is found in the problem. By that, I mean a dissection of the “why” reveals a new direction. Did your company secure a piece of business that cannot be fulfilled in your current location? Has the growth come organically through an increase in the industry? Did you add employees? Has the way in which you conduct your business changed? Have you acquired a competitor or another product line that must be folded into your operation? Have you purchased new machinery or processes that require additional space? Has one of your suppliers asked that you warehouse some of their product where before the product was dropped shipped directly to your customers? Have you brought a formerly outsourced function back into the operation?
 
Specific answers to these questions may determine how we solve your space issue (and what type of space you need - production, warehouse, or office). Let’s spend the rest of our voyage assuming you’ve added a sales staff and the shortfall is caused by a need for additional office employees.
 
Generally, industrial space has a portion of its area devoted to a traditional office environment complete with reception, privates, and possibly a shared cube domain. This “office” is bolted on to the plant or warehouse and may be single or multiple stories. Typically 5-25% of the square footage houses office staff. Therefore, adding additional office space to your location could do it! On the surface this appears to be an easy fix. However, please consider the cost of construction ($100-$125 per square foot depending upon walls, plumbing, upgraded finishes, etc.). If you own, you may be over improving your building for the market and this could affect future resale timing and pricing. If you lease, you will need the owner's approval AND you will be leaving the improvements in the building if you move at the end of your lease. Some occupants have found great utility in modular furniture - flexible layouts and you take the furniture with you if you move. Other considerations are the city in which you operate (the improvements will have to be permitted) and the parking ratio. Generally, office space will require 4 parking spaces for every 1000 square feet of space. Most industrial buildings are parked 2 spaces per 1000 square feet (including office, production and warehouse). You may be limited as to the amount of office space you can add to an existing configuration.
 
Add an office mezzanine:  All of the considerations outlined in the previous paragraph apply here as well. The differentiation is that in addition to adding office space you are also adding square footage to the overall structure by creating a second story. Parking, city permitting, clearance in the warehouse (because you don't want the second floor to be sufficient for Klingons only), cost (structural footings are required to brace and support the mezz and are consequently 40% more expensive than first floor office space). If you create an office mezzanine, are leasing the location, and renew your lease - be prepared for the landlord to base your new lease rate on the "increased square footage" including the new mezz space you added.
 
Lease additional space close by: Whether you own or lease your location, a temporary fix to your space needs may be accomplished by leasing space close by. Please realize you’ll be less efficient with a function close by vs within your confines. The upside to this strategy is that the excess space (if the lease is flexible) can be discarded at the lease expiration (if the space is no longer needed) or renewed until a more permanent solution can be achieved.
 
Allow the function to operate virtually. Not an option a mere two years ago - now quite prevalent in industries across the US. Certainly cultural, management, productivity will be considered but it’s a great alternative for some.
 
You may be wondering how we discover plant and warehouse boons. That, dear readers is a planet for another trek.
 
Columnist note: Today marks my seventh year anniversary as a SCNG columnist! Thank you to all who’ve made the sojourn so enjoyable. Here’s to seven more!
 
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.