Wednesday, October 21, 2015

Separating Wants from Needs in CRE

Image courtesy of Stuart Miles at

You want the beautiful office in the new high rise building downtown.  But does your business need this?

When you are leasing commercial real estate space, you need to separate your wants from your needs.

Let’s give an example to illustrate how to separate wants from needs:

Your favorite music star is playing a concert and tickets are about to go on sale.  Tickets cost $150, which doesn’t include parking, concessions, etc.
You obviously want to go to the concert.

But do you really need to go?

In the above example, there are 2 ways to look at the wants and needs of going to the concert:
  1. You want to go to the concert but the tickets are more than you can afford.  You need to be able to pay your bills.
  2. You want to go to the concert to get away for the night.  You need a break with a night off.  Because you can't afford the tickets, you could substitute dinner and a movie instead, which will give you the same break as going to the concert.
Some needs are easy to identify like food, clothing and shelter.

Other needs are harder to identify because they might involve your feelings or because you have a preconceived notion about how to satisfy that basic need.

So what does this have to do with CRE?

You have to make sure you are fulfilling your business’s needs in a commercial real estate space rather than your personal wants.

How do you accomplish this?

A good starting point is to sit down with your team and make a wish list.  This same analysis applies for tenants and landlords and whether you are buying, selling, expanding, downsizing, renewing, relocating, etc.

Once you make your wish list, analyze each item.

Wish List Item 1: Relocate to the high rise building downtown currently under construction.

Wish List Item 1 is obviously a want and not a need.  You want to move into this building but you don’t necessarily need to.  Maybe you need to expand, move to a new location, downsize, etc., but you don’t need to be in a specific high rise building in downtown.  Figure out what your business actually needs and go from there.

Wish List Item 2: Our office needs at least 10 private offices.

Wish List Item 2 is a bit more complicated.  Do you need 10 offices or do you just have 10 employees who need work space?  If you find a space with a large open area where cubicles can be set up, would this accomplish the same goal as 10 separate offices?

These are the types of questions that need to be asked in order to separate wants from needs.

Wish List Item 3: My warehouse space needs to be zoned for industrial to accommodate my business.

Wish List Item 3 is certainly a need.  Your business obviously cannot operate if it is zoned improperly.