Five Site Selection Factors Start-Ups Should Consider for Choosing a Location

To grow effectively and attract venture capital funding, start-ups often need a hub location to maximize collaboration, training, and efficiencies whether operating in a hub-and-spoke or on-premise facilities model. Because of constrained budgets, it is also important to seek more affordable cities that still meet their talent, quality of life, and infrastructure needs.

Although Silicon Valley, Boston, New York City, and Seattle are still highly regarded as the start-up capitals in the U.S., they are expensive and highly competitive for talent. Utilizing a multi-city site selection process, other attractive cities emerge such as Dallas, Austin, Miami, Nashville, Denver, Salt Lake City, and Atlanta. Once a city has been selected, start-ups need to consider five other key site selection factors to choose the optimal location for their hub office.

1. Location of the hub office.

Start-ups want their spaces to reflect their brand and vision, which is critical for first impressions by potential investors and being able to attract and retain talent in a competitive market.

There are four main types of space:

• Incubator space—incubator space is a great option to consider as a start-up. Most incubators are selective on who is eligible to utilize the space which is often funded by non-profit-type organizations seeking to increase entrepreneurialism or grow target industries within their community.
• Coworking space—these offices are popular for start-ups because they are ready for immediate occupancy with no upfront capital expense and can be secured with short-term leases. You will pay a premium on rent and it is likely that other start-ups will be in the building.
• Sublease space—because of the Covid-19 pandemic, an abundance of sublease space is on the market. Office configurations can be designed to meet your aesthetic and workflow layout and sublandlords often provide discounting rental rates, free rent, and include the furniture at no cost.
• Direct space—this is a good choice for companies looking for longer-term space that can be built to their specific requirements. The upfront capital expense is usually higher for direct space and requires a lease term of three years or longer.

2. Surrounding area.

Is the desired talent pool located near the office? Is it easy to get in and out of the office? What are the transportation options? Do you want vibrant neighborhoods nearby with entertainment, shopping, and dining? Are there other start-ups nearby, or other companies in your industry? What about outdoor space such as parks and greenspace? It is important to have the right blend of surrounding features that will enhance the office experience, as well as attract the types of employees you want to hire.

3. Growth plans.

Planning for growth can be a challenge—even the most careful calculations and market predictions can go awry with fluctuating economic conditions (for example, during a pandemic). It is important to negotiate flexibility in your lease such as expansion, relocation, and early termination rights. Again, tenants have more leverage in negotiations because of pandemic-induced market conditions.

4. Other costs.

For direct or sublease space, the main costs are base rent, building maintenance, real estate taxes, janitorial, and electricity. Many buildings apply an annual increase above base rent in lieu of passing through operating costs to the tenants. Another critical factor for start-ups is the issue of the security deposit. Since start-ups typically lack a financial track record and are not profitable, both landlords and sublandlords will require a higher security deposit which can be 4-12 months of rent for direct and sublease space and 1-2 months for coworking spaces.

5. Economic incentive availability.

Many start-ups forget to investigate the availability of economic incentives such as cash grants, tax abatements, and tax credits. These economic incentives are often available at the state and local levels based on job creation, wages, and capital investment. They will typically vary depending on where you locate within the city. It is definitely worth asking economic development officials if you are eligible.

Summary

Selecting the optimal city to build your business is probably the most important factor to decide. Once that decision is made, it is important that start-ups choose the best location within that city and creatively maximize the flexibility of their lease and the availability of economic incentives. The site selection process can be complex and benefits from the expertise of an experienced site selection consultant who can help you find the best location to meet your current and future growth needs.