“Location, location, location” may seem an antiquated adage in a world where news increasingly defines work-from-home arrangements or entirely digital business models, but nothing could be further from the truth when it comes to commercial property. Despite technology changing the way many – if not most – businesses operate, if a business has an office, store or manufacturing facility, the location can make or break the organization.
Furthermore, location has become less about prestige and more about a combination of driving factors that make it difficult for businesses to operate without certain considerations. Shrewd business owners know that location can sap resources and potential growth just as easily as it can be a competitive advantage if situated in an ideal locale.
Understanding What’s Behind Location Value
Location is a value driver in commercial properties across the globe and one does not need to assess localized commercial property markets to understand why. Value is not abstract; it’s about the economic activity taking place. The greater the infrastructure, transportation access, and perceived benefit of nearby conditions, the more a market will drive up commercial rents. Whether this is due to complimentary businesses or tangible feedback systems, it’s irrelevant; the value is clear.
Take any business district in any city of any nation or continent; time and again, the analyses come back the same. New York’s Wall Street, Hong Kong’s Central District, Singapore’s CBD, London’s Square Mile – they all have similar patterns that exist without question. Companies are closer together because of collaborative benefits that create business opportunities to capitalize on efficiency rather than needing to occupy similar spaces. This mutualism drives up commercial property values but supports additional productivity that appropriately justifies the increase.
It’s not only the businesses that support higher prices but also the infrastructure. Reliable electricity, high-speed internet, effective waste disposal and security drive prices up, but also support business operations. When SG commercial property (or others like it) drive up prices for commercial space, it’s based upon decades of infrastructure investment that bolster only the highest-level opportunities.
Transportation access is one of the highest value drivers for businesses still today. Commercial properties proximate to airports, ports, freight train depots and highway intersections maintain their value better than those further away because they lessen operational costs needed for relocations. In a remote-world economy, transportation access presents one of the highest value drivers supporting daily logistical needs despite digital interconnectivity; moving goods from Point A to Point B exists in an era of eased access to simplified connections.
How Companies Make Location Decisions
Most businesses make location decisions more methodically than it seems. They compartmentalize where they want to be based on generalized needs and specific operational desires. This means that most companies work off an industrial basic standard of what they’ll need and narrow down from there.
Talent accessibility is paramount for most companies looking for office spaces; businesses must be where they can attract talent and then talent must reside not far away from other current living locations or projected living opportunities. However, should trends say differently – such as with companies moving to neighborhoods instead of within business corridors because those neighborhoods provide better quality-of-life – so be it.
Businesses operating in retail are different; foot traffic and visibility matter. Parking needs and proximity to other retailers create opportunities or detract from prospects. A restaurant may need to be near entertainment; a professional services firm may want to be in a quieter area that projects competence through stability.
Manufacturing businesses/factories often require practical locations over prestige. They need proximity to suppliers and shipping channels (inland ports) along with skilled tradesmen and workers; therefore, zoning regulations matter less about proximity to hip, new construction than accessibility options.
Cost vs. Benefit
This is where it gets interesting. Many businesses believe they need to find cheap rent; however, location makes more sense when operational costs overall are lower. If transportation expenses are at a minimum and the ease of access required creates increased productivity, then rent may not matter as much.
For example, a technology company may pay three times the rent to be in Silicon Valley because entrepreneurial access trumps real estate fees; when companies are clustered together, there’s networking potential through synergy and knowledge spillover that creates economic viability.
On the contrary, businesses that do not benefit from clustering growing opportunities on their new accounts may seek spaces outside busy districts to minimize costs. Call centers and back-office spaces need transportation access but don’t require proximity to downtown developments.
Furthermore, assessing risk plays into consideration here – for many people – new developments are redeveloped areas with little historical perspective on growth but established business areas have appropriate infrastructure (power, waste disposal, safety). Companies may pay more because the stability is better than projected potentials in 5-10 years for newer spaces.
Market Valuations
There are ultimately bigger real-time considerations that help create location-based preference for commercial property; these include higher-than-expected market valuations in certain developments when their plan works out or market values stagnating where no one can find value – deterring companies from settling in certain areas ever again.
For example, business areas that attract companies see prices go up; business areas that lose out on competitive advantages see prices stagnate and companies leave them quickly. Secondary markets develop smartly with secondary levels of price-integration growth but they take time (and also occur due to limited supply with increased demand).
In addition, assessed business developments do occur when government involvement facilitates developments where they shouldn’t naturally happen – tax incentives facilitate new business districts when companies otherwise would go elsewhere. Established single-business districts flourish with time but often come through calculated public investment considerations.
Looking Ahead
Ultimately, what businesses deem valuable – and where these qualities are commodity worth – hasn’t changed much over time despite new advancements in how people conduct business models. Access to talent/customers/infrastructure/business climate remain goals irrespective of new systems put into place for training/operational proximity/access.
In sum, location still matters most in commercial property acquisitions because it’s a concept that synthesizes all possible details/business needs/operational considerations that transcend international boundaries.
Yes, technology has allowed trends to increase discoverability across the world; yes hybrid-work arrangements allow companies to capitalize on this newfound mobility – but location still matters as tangible space/resource needs can help grow productivity and companies better and faster than assuming virtual negotiations will solve every problem over time.