Commercial Real Estate Issues For Diversifying Companies 

 4/20/2010 

In response to a changing marketplace, many manufacturers are considering diversifying into “green” sectors including alternative energy, biomedical technology, medical devices and more to sustain and increase their success.  While this trend has significantly affected the manufacturing industry’s outlook and the opportunities for an individual company to expand within it, market competition has also proportionately increased, which makes it more difficult than ever for companies to diversify successfully. 

Moreover, while the “green” trend shows no signs of slowing, the real estate and credit markets show no immediate signs of recovery, forcing manufacturers to creatively use their real estate assets. This has become an essential step in successful diversifying—or strengthening—business offerings.  When considering diversification, understanding how your real estate assets can be leveraged starts with two questions: (1) What is your current space use, and (2) what are your projected space needs? 

What is your current space use?

Having a clear understanding of how much space your company uses is essential to knowing how it can affect your diversification efforts.  Do your operations use excess space?  Could you be using that space more efficiently by consolidating equipment or staff? Organizations may find that their operations are taking up more space than is necessary, therefore identifying areas for growth.  Recognizing and making alternative use of this excess space will not only help you expand your footprint within the current square footage owned, but will also help you determine the square footage you will need and the management costs associated.   

An added benefit to auditing your space is a better understanding of your operational costs.  For example, if you own more than one property, you may want to consider how changes in space usage of each affect the overall productivity of your company. Though capital investments may be daunting in today’s credit market, weighing them against the potential annual operational savings can be an eye-opening exercise.  

What are your projected space needs?

While having a firm grasp on current space needs can show you where your business stands today, applying this information to projected space needs can take the guesswork out of how diversification will affect your real estate expenses – one of any manufacturing organization’s largest business expenditures.  These findings will also affect your ability to invest in new equipment, training, staff or other diversification requirements.  Though the total assets the company will require for growth will dictate the space you will need, the credit market and current incentives programs in Michigan will also drive the total space that your business can take on. 

It may seem simple, but these first two questions are a starting point from which any organization can build out an effective real estate strategy.  By taking a closer look at what assets your organization can already leverage, you can more deeply understand how they will affect your credit and the ability to apply for diversification and growth incentive programs.  

Real estate plays a unique and crucial role in a manufacturing company’s ability to serve its customers.  Whether it be proximity to a cornerstone client or simply having the square footage to house the latest technology in the industry, real estate can make or break a manufacturer’s bottom line.  With a tightened credit market, leveraging real estate strategically has never been more necessary.  

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