“Location, location, location!” You have heard this phrase a thousand times because it’s the tried and true mantra for real estate. How does it really apply to commercial real estate? Just how important is location to the success and longevity of your entrepreneurial venture in particular?
The short answer to this question is that location, location, and location are the three most important considerations to prioritize to ensure the successful operation of your business. As you might imagine, the long answer is more complicated commands a more in-depth analysis.
The first question to ask the budding entrepreneur is what type of business they are planning on opening. Is it a restaurant or hospitality-based venture? Is it a specialized service-based business such as a general contractor or electrician? Or is it a retail shopping store such as furniture, or clothing? Let’s start with a service-based business as this may be the exception to the paramount importance of location in your decision. As a general contractor for example, you will be doing the majority of your work outside of your office and probably at your customer’s home or business. As such, there is little need for an impressive office in a costly location. Furthermore, as a contractor, flooring expert, painter or the like, you may have the need for significantly more square footage to show samples of your work, your offerings, or models of prior projects. This would make a high rental rate location simply not realistic.
Say you’re not opening a service-based business but rather a restaurant, hospitality or shopping business. Where then does location land on your list of priorities in these instances? In my humble opinion, it lands square in the top three locations (pardon the pun). Your coffee shop, shoe store, or fine restaurant better be in the best possible location. This begs the question of where, and what makes the best location. We can start with the most evident factor: traffic and visibility. You want your new business to be seen by as many eyes as possible. Because you’re a smart entrepreneur, you already understand that there are different types of traffic. There is foot and automobile traffic, and also up for consideration is your parking situation. All the traffic in the world isn’t going to do you any good if people cannot park. Even though not all traffic is created equally, there is no substitute for your business being in a highly-trafficked area. Bear in mind that if you are betting your bank on automobile traffic, there better be a good source of well-lit and secure parking options in close proximity.
While traffic is a huge component to determine the quality of a location you must also look at the relevancy of the business in relation to the area. While you may have found a location with a massive amount of traffic and plenty of parking, it is more important to ensure there is a need for your business with the demographic in that area. Let’s use a very obvious example to illustrate what I mean. A coffee shop near a university, or a sunglass and bathing suit store on the beach should prove to be very successful. Conversely you probably wouldn’t want to put that same bathing suit store by a ski resort in Canada. Simply put, if you’re playing the traffic numbers game then make sure your business is appealing to as many of those potential customers in the area as possible.
Let’s expand on the importance of said demographics with any particular traffic. It is fairly easy to determine the demographic makeup of any given area as there are multiple companies that provide statistics detailed and intricate beyond your imagination. However, the key statistics that would best assist you in determining the suitability of your business in a location would be: age, income, education, and population.
In summation, we know that location is of paramount importance, your business needs traffic and parking options for said traffic, and that you must do your due diligence in ensuring the demographic has a need for what your business plans to offer. Many of these key points are not surprising at all, and you might be thinking ‘I already knew that!’, but keep in mind that fundamentals are usually not ‘new’ ideas at all; we know them and have always known them even, but to really apply what we know is key. Here are a few less-known tips that might not be quite as obvious!:
1) Follow the competition! This may oppose your natural inclinations but think about it, there’s a reason you often see restaurants clustered together: that location is such that it can support multiple eating establishments and likely boasts a demographic already primed for what you offer. If you see a bunch of restaurants and they all seem to be doing well then don’t be afraid to throw your hat in the ring and join the party. Just make sure that whatever you’re offering is at least as good as the competition.
2) Don’t be afraid to pay extra for the best possible property within an incredible location. You will see this instance with malls and commercial shopping centers. Often times it’s not enough to just be in the specific location; you want the best possible venue within the commercial development as well. Perhaps you have found yourself a space within a world-famous shopping mall. It wouldn’t be as great if you were the last store in that mall, hidden away in a corner difficult to find, or worse yet, furthest from all of the parking. ‘If you build it they will come’ won’t ring true if they can’t find it! Remember that people go to shopping centers and malls for convenience so if you’re going to pay the premiums to be there in the first place, pay a little more to have the best property within your desired location.
3) Stop thinking with short-sight about today and tomorrow, and start looking further into the future, making your plan robustly all-encompassing. The internet has made knowledge so accessible that we can literally see what is coming in the next few weeks, few months and even few years. Go to your local city planning department and see what is being developed in your area. There may be a location that’s about to explode with new developments and with the right timing you could take advantage of it. Realtors can be a well of information with regards to upcoming developments in an area as well because their success depends on it so ask around, pound the pavement, and jump online.
What is the long and short of this all, and the penultimate conclusion of what takes priority over all other considerations with your budding business? Location, location, location!