Site Selection | How Do I Make Data Useful for Critical Decisions?
Ah, site selection… let me know if this sounds familiar: We need a new data center! We need to open fifteen new locations every year for the next ten years! We need a new R&D center! You’re the director of real estate and you’ve been tasked with finding these locations.
What to do? Where to start? You could call a broker and start getting a list of potential locations, but you may be missing a chance to really help your organization. Real estate is only part of the equation.
What is Site Selection in Commercial Real Estate Management
The site selection process in commercial real estate refers to the systematic and strategic process of identifying, evaluating, and ultimately choosing the most suitable location for a commercial property or business operation. This process is crucial for businesses looking to expand their real estate portfolio.
Several aspects of the site selection process are dependent on answers to questions like:
- What business processes will be supported at the new facility?
- Do we need it near an existing facility?
- Could it be located essentially anywhere?
- Is the location client / customer-focused?
- Do we have preconceived locations in mind?
- Are we open to other ideas?
- Does the area have the infrastructure (airports, rail, mass transit, hotels, housing, eateries, etc.) to support operations?
- Can we attract and retain talent?
These are just the surface questions, of course. In the remainder of this post, we’ll explore the general process and how we utilize our business intelligence platform to support this service.
Site Selection Process
This process will vary depending on asset type. For our purposes, we will consider an all-encompassing site selection. A back-office operation could theoretically be located anywhere.
With this in mind, we will go through a funneling-type process:
- First, we define the project scope.
- Second, we evaluate all geographic areas.
- Next, narrow the search to target areas.
- Then proceed to building / property search and evaluation.
- Finally, enter the formal transaction process.
1. Define the Project Scope
The first step in the site selection process is to define the project scope. We will use our business intelligence (bi) tools for data analysis and data visualization.
This involves identifying the business’s goals and objectives, such as
- the business function(s)
- type of property
- location
- size
The project scope should also include the budget, timeline, and any other requirements.
During this phase, we will establish “area” criteria. Area criteria will be collected at various levels according to availability.
For most efforts, we could gather real estate market information at the state / province, county, and or metropolitan level. Sometimes it’s critical to get down to the census tract or even block group but that is more often only useful at the building / property search phase.
It is most common to combine the area criteria into logical groups, such as:
- labor cost
- geographic location
- demographics
The decision-makers then agree on how important each of those categories is, providing a percentage weight. When all criteria have their percentage weight added, it will equal 100%.
If consensus on weighting cannot be achieved, there is a more formal process where each stakeholder takes a survey and is asked to pick criteria A or criteria B as being the more important. Then if criteria A is more or less important than criteria C, and so forth. This is a multi-criteria decision analysis. It is a tool that can aid a group of stakeholders in reaching a consensus on how to rank areas and subsequent property options.
We use our business intelligence platform to capture both quantitative and qualitative information, which then will be utilized to compare against potential areas in the subsequent phase.
2. Geographic Area Evaluation
We may have some preconceived ideas on where to locate a facility. Starting with that short list can potentially cost your organization dearly. There are a couple of key reasons to start with an open mind, evaluating all areas before narrowing it down to your “target” areas.
- First and foremost is the fact that you may miss out on a much better opportunity if you limit yourself to the preconceived areas.
- Second and almost equally important, is team alignment. Walking through the process in this manner fosters alignment of the key stakeholders due to the transparent process itself.
All stakeholders should be involved in the scoping phase where the area and facility criteria are agreed upon. When the short list of “target” areas is determined based on these agreed-upon criteria, there should be few questions regarding why. It is critical to incorporate this level of rigor, especially when balancing the needs and wants of competing interests.
Some of the possible criteria considered in the geographic area evaluation phase include:
Labor Costs
- Availability of labor
- Labor pool
- Wage requirements
- Cost of living
Geographic Location
- FEMA risk indices
- Transportation infrastructure such as interstates, airports, rail, ports, etc.
Demographics
- Consumer behavior
- Demographics of the target audience
- Availability of labor
- Talent acquisition and retention
- Competition in the area
Financial Variables
- Business expenses
- Budget
- State and local taxes
- Government incentives
Data is collected for all or some of these variables at the appropriate level of granularity and then loaded into the business intelligence platform. Subsequently, the data is normalized to standardize data values onto a common scale. This is necessary to have a consistent basis for scoring each geographic area and comparing it to the “ideal area” as described in the project scope phase.
Data Normalization
Data normalization can be achieved in many ways depending on the data in question. Some criteria may be a simple yes or no, or normalized on a scale of 0-10, a 10 or a 0.
If we were considering labor availability and one county had 2,000,000 compared to the average of 50, should the 2,000,000 be 10 and the 50 rated as 1? No, of course not, but you can start to see the complexity that can be involved when dealing with real-world data sets, often with extreme outliers.
Having a transparent and logical criteria weighting, normalization, and scoring system is another important aspect enabling the final decision process to proceed more smoothly.
After evaluating all the areas, the highest-scoring areas are presented in the business intelligence platform to show why they were selected. After getting buy-in, we narrow our focus to three to five (sometimes more) “target” areas.
3. Identify Potential Locations
Once the target areas have been identified, it is time to start evaluating where in those target areas. At this stage, it may be necessary to perform a similar task as in the previous phase (except, at the zip code, census tract, or even block level.)
After completing that, we now have our search areas within the target areas. It’s time to start looking for land for design-builds or existing facilities that will meet the business requirements.
There are many different criteria to evaluate at this stage. Some of the most common include:
Geographic Location
- Proximity to amenities
- Access to major highways or heavily trafficked roads
- Road frontage
- Visibility, ingress, and egress
- Topography and landscaping
Demographics
- Availability of labor
- Talent acquisition and retention
- Competition in the area
Financial Variables
- Rent / purchase price
- Site development
- Labor recruitment
- Labor training
Legal Variables
- Zoning ordinances (local)
- Zoning requirements
- Setbacks
Site-Specific Variables
- Ability for on-site expansion
- Site ingress and egress
- Property /building size
Infrastructure
- Availability of utilities
- Access to high-speed internet
- Transportation infrastructure
Facility (if Existing)
- Capacity
- Use type (office, warehouse, lab, mixed-use)
- Occupancy type (single, multi-tenant)
- Clear height
- Dock doors
- Parking
- Etc., Etc., Etc. (This is a partial list, as actual lists can be very long and detailed.)
After collecting the data, load it into the business intelligence platform. This, along with site and building photos, makes it easier to compare and contrast them. We use the system to facilitate discussions with the key stakeholders as well. Which, again, assists in developing consensus and moving the decision-making process along.
4. Transaction Process
Now that we have identified the actual land for a design-build or an existing facility, we begin in earnest the process of securing that asset. That’s a discussion for the brokers though!
Conclusion
In conclusion, as with any project, having a defined process is important. Site selection is no different. All these steps may be applicable to certain asset types, while only a subset may be relevant for others. Having a cohesive cross-functional team working with stakeholders, explaining and getting buy-in and input throughout the process, helps organizations achieve better results.
When you get to the final decisions, there will be fewer “What if we did this instead” or “Did you consider this area, I’ve heard good things” because all those discussions have already been had, and all the supporting data is still available to show the trail that led to this critical decision. Do yourself and your organization a favor and take the time to do it right!
