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Does Available Real Estate Drive Location Decisions?

The ranking of available land and buildings by the respondents to Area Development's Corporate Survey reflects the fact that the importance of these factors is contingent on the project.

Oct/Nov 09
It is not uncommon for companies facing deployment decisions to initially perceive location strategy and site selection as a function of real estate. Everyone is familiar with the classic real estate adage: "There are three things that matter - location, location, location."

But can the reverse perspective also be valid - how much does the right location depend on the availability of real estate? It depends. It is not a question of the importance of real estate in a location decision - it is clearly a critical component - but more the timing for when it becomes a critical driver. More than real estate must be considered.

Many Factors
Invariably, an effective location decision requires the evaluation and prioritization of many decision factors, of which real estate is only one. The priority of real estate as a driver in the location decision is dependent on its importance compared with all other factors. Thus, choosing a location must start with an assessment of the decision criteria that are most important for the long-term success and sustainability of a project. Examples of these criteria include:

• Labor market alignment  (depth, scale, sustainability, growth)
• Optimal position to targeted labor shed within a community
• Risk (political, economic, regulatory, natural disaster, security)
• Access (to other company locations or key markets)
• Access to transportation infrastructure (air, highway, rail, ports)
• Precedence for similar operations
• Alignment with other current or planned client projects or operations
• Structural operating costs (labor, taxes, utilities)
• Utility infrastructure (supply and reliability)
• Regulatory and entitlement (zoning, permitting, environmental)
• Quality of life considerations (crime, school systems, cultural and recreational amenities)
• Real estate (suitability, availability, and cost)
• Timing risks
• Governmental support for the project and incentives

When Does Real Estate Come Into Play?
In most cases, real estate selection only comes into consideration after the most critical decision criteria have been satisfied. In a typical project, real estate begins as a lower priority consideration, and becomes increasingly important as the list of potential location options narrows to just a handful, and then it may be among the deciding factors in selecting the final community. However, the importance that real estate plays at the beginning of the location decision is different for every project, and consideration must be given to the following:

• What type of operation is being considered?
• How important is having an existing building versus building to suit?
• How customized does the building need to be?
• How challenging are the client's land and utility requirements?
• What is the timing of the project, and when does the client need to take occupancy?

Depending on the industry, size, and function of the operation, existing buildings may be either readily available in most markets or scarce due to specific needs.

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