There’s a tried-and-true adage that floats around in the field of commercial real estate: location is everything. It sounds simple, but choosing the right site for your business is anything but.
Choosing the right type of real estate for your business depends on a variety of factors:
Location: Consider accessibility, visibility, and the surrounding neighbourhood. Accessibility doesn’t just mean that the building adheres to accessibility standards. Depending on the concept, think about how you will personally approach the location. For example, if you anticipate working on-site often, is the distance to travel and commute time convenient for you?
Of course, a prime location is difficult to determine these days. Following COVID-19, it’s a landlord’s market out there, with Alberta and Ontario considered the toughest markets. Salespeople used to generate additional interest by telling prospective landowners that they have other clients looking at the same property, when in reality, there was no one else. Today, however, there are likely three other franchisees vying for the same site as you.
Demographics: Understand the target market and whether the area aligns with your business. Your franchisor should understand what your target market is—including age, income, education levels, and cultural diversity—and communicate it with you. This will help you assess the market potential of a location, tailor your services to that area, and plan for infrastructure development. In the long run, this will enable a deeper understanding of your target audience, ensuring that the business and its services align with the needs and preferences of the local population.
Keep in mind that, as a franchisee, you may want to be in a certain area, but it doesn’t fit the brand’s concept. For example, you may have your ideal mall site in mind, while your franchisor is focused on opening drive-thru locations. Many larger franchisors will benchmark their top three stores against a location that the franchisee is considering and provide guidance.
Costs: Evaluate your initial investment, property taxes, maintenance fees, and potential renovation costs. One budget item that many investors don’t consider is ongoing common area maintenance (CAM) charges. Right now, the cost of CAM is high, and it may change from year to year, for better or worse. There are areas of the country where CAM is more expensive than rent, so be aware before signing on the dotted line.
Other costs to take into consideration are whether you purchase a pre-built property or a piece of land on which you intend to build. Some franchisors will allow locations to be self-built rather than pre-built or in a location built by the franchisor, and many franchisees think they will save a lot of money if they take it on themselves. However, if you don’t have construction experience, it will probably end up costing you more. Construction management is a headache and best left to the professionals—focus instead on your training and your employees’ training.
Zoning regulations: Ensure the property is zoned for your intended business activities before putting in a letter of intent or lease agreement. To check the zoning of a new location, you can contact the local planning or zoning department, which will typically provide zoning maps and regulations. Risks you should be aware of include zoning restrictions affecting your intended use, potential changes in zoning laws, and compliance challenges. If you need a location to be re-zoned, the local planning or zoning department can help point you in the right direction. Remember that zoning changes will take time and money, so it’s often best to consider another location.
Future growth: Assess the area’s potential for development and future market trends. This means that you’ll want to find out if the area has any planned redevelopments or construction in the future. Future growth can benefit a business by increasing customer demand, providing access to a larger talent pool, and creating opportunities for potential partnerships. While future growth is positive, prospective business owners should take care of opening their businesses during ongoing construction, as this can limit access and traffic to your store. To gauge if future growth is viable, businesses often analyze market trends and economic indicators and conduct thorough research on the target area’s development plans.
One way for a franchisee to anticipate an area’s future growth is to contact the city planner and business improvement areas (BIA). BIAs are made up of commercial and industrial property owners and their non-residential tenants who come together under a volunteer board of management to carry out improvements and promote economic development within their designated area and can be a great source of information about the future of businesses in the area.
Competition: Analyze existing businesses in the area to gauge competition. Competition shouldn’t be something to fear—if similar businesses are in the area, there must be a reason! Healthy competition can drive efficiency, encourage creativity, and enhance overall industry standards. It also compels businesses to continuously innovate and improve their products or services to stay competitive.
Market research: Understand the demand for your business in that specific location. This ties into your franchise’s demographics and the demographics of the area and will help you identify potential challenges and opportunities. A franchis or typically assists franchisees with market research by providing access to consumer behaviour insights and industry trends. They may offer guidance on local market conditions, provide a competition analysis, and help franchisees understand their target audience. Additionally, franchisors often share best practices and proven strategies based on successful experiences in other locations to support franchisees in making informed decisions about their business.
Real estate selection is an incredibly important early step in setting up a franchise location. By paying attention to the details laid out by the franchisor and analyzing the potential future of the business, prospective franchisees can set themselves up for success.
Joel Friedman, Owner/Vice President
Southbrook Business Development Group
joelfriedman@southbrookbusiness.com