Considerations for Making the Most of Tax Reform When Seeking New Office Space
Passage of the Tax Cuts and Jobs Act of 2017 has buoyed economic confidence to levels that haven’t been seen in decades. The dramatic reduction in the corporate tax rate has provided companies with a windfall in discretionary cash flow to invest in growing their business.
But even with newly freed capital on hand, many office-based companies are finding that growth is constrained by another factor: space. As they look to invest in more people, more equipment or more capabilities, business owners may also need to invest in larger – or differently configured – floorplans.
The good news is, the tax reform’s positive impact on lenders has made it easier and more attractive for business owners to borrow money to buy or improve commercial office space. With the possibility of expansion on the table, companies can think about their current and future needs with a new lens. But before scouting out a larger office space or expanding their corporate headquarters, business owners should take the following three factors into consideration:
- In many markets across the U.S., good, functional space is becoming harder to find. Lease rates are also at a premium for prime locations, such as mixed-use buildings and in walkable areas. This demand is only going to rise, so business owners need to move quickly to secure prime space if that is key to their long-term strategy. When seeking new space, owners also need to consider taxation. A mailing address can play a big role in take-home pay in localities that levy income taxes.
- Construction costs are continuing to rise as a labor shortage squeezes the industry. As they consider how to best accommodate an influx of staff, business owners need to account for the price tag of expansion or new construction. With capital widely available and interest rates still relatively low, this may not be a hurdle, but it could prompt creative thinking for how to best use available space.
- The time required to find new space, expand existing space or build new tends to take longer than many business owners anticipate. On average, the time required for finding and renovating office space is six months. That factors in the time required for negotiating the lease or purchase, planning out space, and working through the renovation process. Time is an investment that owners do not want to skimp on; rushing through the planning process could result in wasted dollars or missed opportunities.
As with any business decision, finding the right location and making the best use of the floorplan requires strategic planning. Business owners can save themselves time, money, and headaches with effective planning before making the decision to renovate, expand, or find new space.
For example, a needs assessment can help owners determine how much space they really need to meet their goals. In some cases, owners may find they can squeeze more efficiency from their existing space by rethinking how much square footage is allocated for offices and cubicles.
Effective planning can also help owners prioritize their needs versus wants, which will ultimately save both time and money. With a defined plan in hand, owners will not lose time touring spaces that are too small or risk wasting dollars on unnecessary square footage. Prioritizing needs and wants at the outset can also help businesses zero in on the right location. Leasing a prime office space might be nice to have, but an alternative space that fits the bill in terms of needs could prove less expensive and easier to obtain.
Deciding how to accommodate growth is a good problem to have. Just several years ago, businesses were largely seeking to downsize to cut costs. Tax reform has put wind in their sails. By making strategic decisions about their office space now, business owners can make the best of these headwinds as they invest in their future.
For more information on determining your best options for office space in the Dayton market, contact Aaron Savino at 937.293.0900.
Watch for upcoming information on the effects of tax reform and industrial space.