17 Site Selection Best Practices to Consider Before Searching for Your Next Location
by King White, on Jun 25, 2021 9:53:18 AM
The site selection process is complicated and can often feel like you are in a novel that is being written page by page on your journey to finding the optimal home for your company. From assembling the site selection team through the ribbon-cutting event, there will be many twists and turns of the plot that can make or break a site selection decision. From industrial projects such as manufacturing and distribution operations to corporate operations such as call centers and headquarters, every project is unique and has its own set of site selection criteria. To help you navigate the pitfalls of the site selection process, Site Selection Group identifies 17 best practices for making better site selection decisions.
1. Assemble the right site selection team
It all starts with putting together the right team. You will need subject-matter experts with a variety of specializations. Some companies will assemble an internal site selection committee that manages the process from start to finish. The team typically includes management-level individuals from the business unit, real estate, operations, IT, tax and human resources. In addition, companies will engage outside consultants who specialize in site selection, engineering, construction, economic incentive and real estate services.
2. Obtain an executive-level project sponsor
It is critical to get buy-in from the highest level of a company prior to embarking on a site selection project. Typically, you will find someone in the C-suite who fills this role. This person will often be the one providing updates to the CEO and board of directors during the site selection process so that you don’t run into any issues getting funding for the project.
3. Clearly define your project needs and objectives
The project team will typically want to develop a list of project criteria to garner consensus on the needs and objectives of their company. A project questionnaire is a great way to determine the project criteria such as employees, capital investment, real estate, infrastructure, geographic preferences, timing, etc. You also need to consider alternative workplace strategies such as hybrid and work-from-home and how such strategies may impact your labor and real estate needs.
4. Narrow the search area utilizing a filtering process
One of the first steps in the site selection process is conducting a filtering analysis to narrow down the search area. The filters are typically driven by the project and industry type. For example, distribution and manufacturing operations will often be driven by logistics, infrastructure, utilities, labor laws and taxation. Conversely, call centers may be driven by time zone or language skills while data centers are driven by electricity rates and redundancy. You will also want to make sure and use traditional demographic filters such as population size, accessibility and employee skills.
5. Develop a detailed site selection scorecard
You will want to score and rank metro areas under consideration which will typically require a site selection scorecard. Knowing what data to utilize and how to weight it is complicated and dangerous so make sure whomever develops the scorecard has years of experience. One incorrect data point or weighting could take you in the completely wrong direction. Labor availability, labor costs, business climate, real estate conditions, economic incentive availability, logistics, accessibility, infrastructure and demographics are some of the primary categories often utilized that will have 10 to 20 datapoints under each category.
6. Utilize reliable and consistent site selection data
It is critical to use quality, reliable and up-to-date data when populating your scorecard. Most of this data requires expensive subscriptions. Free data found on the internet is probably the most dangerous source of information. Another source of data can be from economic development organizations, but you need to be careful as their data likely comes from different sources so it isn’t apples-to-apples.
7. Identify long-term trends versus focusing on short-term events
Companies are often swayed by announcements about site closures, mass layoffs or recently awarded economic incentive packages. These types of events often catch media headlines as well as the attention of corporate executives. It is important to evaluate the cause of these events to understand if there are any long-term problems such as labor market challenges or a less favorable business climate.
8. Conduct original market research to uncover anecdotal information
Many companies and amateur site selectors often think that data provides all of the answers. Purely data driven site selection decisions can be dangerous and misleading since a lot of data is often from the previous year or based on projections. Original market research such as interviews with existing employers, staffing agencies, workforce development officials and economic developers can uncover what is really happening in a labor market.
9. Maintain confidentiality
You can maximize your negotiation leverage by maintaining confidentiality during the site selection process. Your site selection committee is key to controlling communication to help avoid leaks from internal employees, third-party consultants, real estate brokers and economic development organizations. It is critical to not let economic developers and landlords know what cities or buildings you are considering so you have the upper hand in negotiations for both real estate and economic incentives.
10. Engage conflict-free corporate real estate professionals to represent you
The commercial real estate industry has undergone significant consolidation and will face many challenges in a post-COVID-19 world. As a result, conflicts of interest have become greater than ever as the large real estate firms own, develop, lease, sell and manage billions of square feet of office and industrial real estate in an effort to generate fees. It is critical that you engage a real estate partner who understands complex corporate real estate needs and exclusively represents your interest in negotiations.
11. Determine your negotiation strategy
Economic incentive and real estate negotiations can be complex and confrontational if not handled in the right way. You really need to decide if you want to take a hardball or a more partnership-type approach with landlords and economic developers. More importantly, remember that your company will be in this location for a much longer time than the negotiations.
12. Economic incentives are only a part of the answer
Economic incentives have increasingly become a critical part of the site selection decision-making process. It is important to not get swayed by lucrative economic incentive packages that will in no way ensure that your company can successfully operate in a community. The classic saying is that economic incentives should be “icing on the cake.” Incentives are part of the equation for evaluating and deciding on the optimal site but should really be considered a tie breaker with all else is equal.
13. Utilize an integrated financial analysis
Calculating the true cost of doing business in one location over another is much more complicated that it sounds. A fully integrated financial analysis looking at the 10-year cost of doing business is extremely complex as you need to consider costs such as salaries, benefits, taxes, real estate, capital investment, utilities, transportation and other factors that are much more than just real estate costs like a typical real estate broker might evaluate. Then you need to overlay the impact of economic incentives have on your overall cost to determine the true value proposition of each location under consideration.
14. Manage expectations related to job creations and capital investment
It is often better to be conservative when disclosing what your job creation and capital investment plans might be. Overpromising and underdelivering can cause headline risk to a company’s reputation due to potential public scrutiny in the local media. It can also be financially impactful if the incentive package includes clawbacks. A better approach is to structure economic incentives to cover you on future growth to allow you to minimize your risks but capture the upside potential of your project.
15. Select the right construction team
Assembling a construction team and strategy early in the site selection process can save time and money. It is really the only way to accurately develop the specifications of your project, so you know what you are looking for during the site selection process. The experts you need to consider include internal real estate experts, architects, engineers, general contractors, furniture and equipment vendors, and relocation providers. A lot of companies will hire a third-party project manager to manage the entire construction process due to the complexity and amount of time required.
16. Conduct thorough real estate due diligence
The classic saying “the devil is in the details” often applies to the real estate due diligence process. Due diligence is a time-consuming and expensive process but critical to make sure you don’t commit to real estate with environmental issues, insufficient infrastructure, outdated building systems and permitting restrictions.
17. Develop an economic incentive compliance strategy
Companies often don’t consider the complexity of the compliance requirements of economic incentives during negotiations. Some companies have dedicated staff that only do economic incentive compliance while others outsource to third parties. Regardless who does it, you need to determine who it is early in process so they you can make sure to structure the economic incentives so they can be captured and realized. Site Selection Group has even developed an economic incentive compliance software called IncenTrak which can help you maximize your economic incentive receivables.
Site selection is much more of an art than a science. The days of looking at some basic demographic data and a map to decide where to locate your headquarters, manufacturing plant, call center, software engineering, distribution center or data center are long gone. Hopefully, these site selection best practices will help you in finding the optimal location for your next site.