For fast growing companies, establishing and executing a real estate strategy can be a daunting task. With most commercial leases expecting 5+ years of term, it can be difficult for company executives to make confident decisions on their real estate while their company is in growth mode.
Here are some principles the advisory team at R.W. Holmes Commercial Real Estate utilizes with their high-growth clients to help them make informed, flexible decisions to help align their real estate strategy to their company strategy:
1. Establish a Real Estate Strategy
Your real estate is a tool to help execute your operations and establish your company brand/culture. Real estate needs to be discussed as part of the overall business strategy to ensure you are maximizing your efficiency and utilization.
Every company has a different strategy and goals, so you need to work with your real estate advisor to establish a real estate strategy unique to your specific needs. This takes into account your expected growth over the next 1-5 years, your financing (privately held, VC/PE, plans to go public, etc.), and the timeline for your exit strategy. Once the big picture plan is in place, then it’s time to focus on how your real estate can help maximize efficiency and differentiate against competitors. This can be a focus on employee retention, speed of delivery to customers, or maximizing client relations.
2. Flexibility is Key
With any growth company, plans are constantly changing. With that, your real estate must be as flexible as possible. Working with your real estate advisor to ensure that lease language provides flexibility and aligning with the right landlord who can react quickly to your changing needs are just some of the ways to ensure your real estate helps your growth rather than hinders it. This can be expansion clauses, early terminations, sublease language, phase-in options, and more.
3. Re-Assess Your Real Estate Strategy Annually
While stable companies can typically utilize the same real estate strategy for 5+ years, high growth companies consistently need to reassess as their business develops. There could be changes in funding, major increases in headcount, or the need for new locations. Meeting annually with your real estate advisor to ensure your strategy still aligns with your business can be vital in ensuring operational efficiency and preventing downtime.
Trends and Strategies for High Growth Companies:
1. Spoke and Hub Model
For many of our larger, high growth companies, the Spoke and Hub Model offers them the ability to grow in other locations in a controlled, strategic way (whether within state, nationally, or internationally). The decision-making process is unique to each company, but in general it revolves around one major headquarter location as the “Hub” and then multiple satellite locations as “Spokes” that provide a wider geographic presence or perform specific tasks.
On a local level, we have seen this strategy with some of our clients who need their office in one location to attract specific talent while their warehouse or R&D facility is located in another in-state location to attract a different subset of talent.
For our national and international clients, establishing spokes must focus on the business benefit, not the personnel operating the location due to the risk of turnover. Starting in a co-working or sublease location for a short-term lease to assess the viability of a location before signing a longer-term deal provides the best option for flexibility.
2. Align with the Right Landlord
Some landlords operate in a way that is more conducive for high growth companies. While many landlords are hesitant to offer termination options or other flexible lease terms (depending on the market conditions), some are more open to these terms or alternatively have a large portfolio in a specific area where they will relocate you during your lease term to accommodate your growth without any major changes to the agreement. Knowing which landlords can move quickly, provide creative solutions, and have the properties that align to your business needs is critical to making your real estate process as smooth as possible.
3. Utilize Co-working or Subleases to Test Strategies
As we have seen with some of our Hub and Spoke clients, co-working or short-term subleases can provide companies with flexibility to test strategies or hedge against an unknown future. Co-working can be great for small teams and new geographies but can be difficult in establishing your own culture. Subleases can be great for discounted rents and short lease terms but provide risk in future availability or pricing. Work with your real estate advisor to determine which of these options will work best for your desired goals.
Overall, the key takeaway is that a strong, established real estate strategy can help guide an executive team through the unknowns of high growth. By understanding the impact and benefits of your real estate, it becomes easier to make longer term decisions. Please reach out to one of the real estate advisors at R.W. Holmes with any specific questions or to set up a meeting to discuss your real estate strategy.