The Best Time to Move a Growing Company

BY NOAH DAVIS

 

@noahedavis

It's a question all growing companies face: When is it time to move?

Consider what led Adam Fridman and Hank Ostholthoff--the founder and the managing partner, respectively, of the fast-growing, Chicago-based digital marketing agency Mabbly--to move their firm's headquarters in February from the city's River North neighborhood to the West Loop. That up-and-coming district features industrial buildings, a 200,000-square-foot Google office that's opening next year, and a bevy of bars and restaurants.

"It's a little grungy," says Ostholthoff, "but a lot of our new hires are in their early to mid-20s and it's an area they are excited to be a part of." To rework the old real estate phrase: Location, location, location, but in the service of your talent, talent, talent.

But you should also be thinking space, space, space, because the average square footage needed per employee has dropped from 225 to between 150 and 175, according to CoreNet. Thank collaborative workspaces and tenants learning to use space more efficiently, says Jacquelyn Faranso, an associate at the Chicago offices of Sperry Van Ness Commercial Real Estate Advisors. This is what brought software company Zerto to an old brick building in Boston's innovation district. Zerto turned a tangle of dark offices into an open-floor, 10,000-square-foot space that can handle about 75 employees. Zerto will pay around $40 per square foot on a five-year lease, compared with the low 30s for a 3,000-square-foot office, which felt cramped with 27 staffers.

It's worth keeping your future growth in mind as well. The blog network Gawker Media will take over a 60,000-square-foot office in Manhattan's Flatiron district; by subleasing one of the three floors to another firm, Gawker has room for expansion without overspending now. (The location, just north of Union Square, helps too: Media startups BuzzFeed, Mashable, and Business Insider also call the area home.) If you're growing fast, tread with care: Mabbly planned on moving to a space 10 to 20 percent larger than what it needed, says Fridman--then realized it would need to move again in a year.

Being aware of economic incentives can help. King R. White, president of Dallas-based corporate location adviser Site Selection Group, says companies with as few as 25 employees may receive tax abatements, cash grants for job creation and training, and other financial allowances when they move. Samuel V.K. Lee, principal at Chicago's ­Euclidean5 Advisory, suggests companies investigate federal programs such as Pilot (payment in lieu of taxes), and work with real estate developers or owners to learn if a property is eligible for TIF (tax increment financing) benefits to mitigate moving costs. The right move can easily pay for itself.

But sometimes, White says, "the lowest-cost strategy is to stay where you are." Matt Krzysiak, CEO of Irving, Texas-based roadside assistance firm National Motor Club Holdings, considered moving a call center in Hickory Creek. He saw a few sites a significant commute away, then realized that moving would hurt retention. Holding onto employees can be as important as recruiting--even if keeping them means forgoing a fancy new space. Though if you keep growing, soon you may need to consider moving anyway.

Reasons to move--and reasons to stay

RETENTION

Pro: Don't under­estimate how happy a tricked-out new space can make employees.

Con: Sometimes retention requires staying put.

RECRUITMENT

Pro: The battle for talent never ends, and a brand-new office in a desirable location can be a major draw.

Con: Expect that some current employees will need to be sold on the move--especially if their commute would be changing.

ECONOMIC INCENTIVES

Pro: Move to a great new space--and get paid for it? Where do I sign?

Con: If incentives are tied to certain metrics related to job creation or retention and your company can't meet them, be prepared for negative PR and a possible backlash.

When you're mulling that move

This wealth of info and analysis can help you hatch a plan.

ZoomProspector: A free service that lets you compare criteria across many markets.

PiinPoint: The Ontario-based former Y Combinator startup analyzes markets by crunching billions of data points, including competition, demographic, traffic, and construction information.

Experian and Nielsen: Both offer detailed, block-by-block demographic information and heat maps that can display, for example, neighborhoods where developers live.

Crimereports.com: Dig into this site for up-to-date reports on crime around specific addresses.

LoopNet and Showcase: Scads of free or low-cost commercial real estate listings, and reliable ways to get a grasp of new