Are growing Burnside companies building too much?

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By Brittany P. Curran

What companies building new premises need know before adding additional square footage

What companies building new premises need know before adding additional square footage.

When should a business expand? What’s the harm in modifying buildings, adding square footage or starting a new space from scratch? How does a company know when it’s the right time?

Burnside business owners have pondered these questions recently. The general consensus for construction is that the larger the build, the cheaper the project. But is all that extra construction really necessary, even if it seems the most economical?

The Park’s land reserve totals 630 acres, but with so many changes as of late, it will most likely be diminished in less than 10 years. On the other hand, Interest rates are low, which means it’s prime building time for companies that wish to grow, or those that currently rent and want to own.

In the world of commercial real estate — particularly for blossoming or bigger businesses — owning a property may be more ideal than leasing. If a company acquires a larger area than needed, they can rent out the excess space until needed in the future.

However, there are some factors to consider if you’re thinking of including the landlord hat in your commercial wardrobe. John Kit of Burnside Realty cautions that unlike manufacturing, for example, leasing space is a service business and it requires a whole different set of tools. You need a whole range of subcontractors on your smartphone’s contact list just to maintain your property. And if interest rates should start to move up, your costs will follow, which could lead to higher rents for your tenants and, subsequently, send you searching for new tenants.

Eastern Turf Equipment, a Dartmouth-based company, has decided to make the move anyway. After 25 years in business, Eastern Turf decided it was time to upgrade with a new headquarters in Burnside; a grand opening is set for the fall.

“We designed the new space from a blank piece of paper so we were able to make the new space much more efficient and customer-friendly,” says Jeffery Webber, a partner of Eastern Turf and Wright Property Holdings Ltd.

Eastern Turf specializes in golf, commercial, municipal and residential turf maintenance equipment, as well as snow removal equipment. They also sell consumer products such as lawnmowers, snow blowers and chainsaws.

The company will occupy 45 per cent of the new building and the remaining half dozen spaces are to be leased out to compatible tenants. Eastern Turf has room to grow, though, if they eventually need to reacquire the six 3,300 square foot spots.

“They can be leased individually or can be combined to make a larger space,” Webber says. “This adaptability

combined with incredible location and exposure has brought us a number of potential tenants and we expect to be fully rented before the end of the year.”

But what if the fundamentals in the future are different? What if all that extra space isn’t as easy to deal with as first thought?

Michael S. Turner, president of Turner Drake & Partners Ltd., says there are huge challenges looming on the horizon that anyone getting involved in leasing space needs to consider now.

“In our view the biggest challenge facing a landlord or business owner/landlord isn’t rising interest rates, or even for a business owner the rapidly changing business environment resulting from the Internet, it’s our rapidly changing demographic. This is the ghost at the feast that everybody prefers to ignore,” Turner says.

Turner Drake & Partners’ Economic Intelligence Unit has plotted this region’s aging population using data from the 2001, 2006, 2011 Census's and Turner says the picture is “truly horrific.” The numbers show the impact will manifest itself in 1.) a decline in demand for many products, 2.) a shortage of labour and 3.) a decline in tax revenues.

All of the foregoing will result in a decline in demand for industrial and office space and an increased property and income tax burden.

“This is already happening in Atlantic Canada, but the impact has been masked in urban areas such as HRM because of the migration of population from rural areas. HRM is growing, but this has to stop because we’re denuding the countryside of people,” Turner says. “We have graphed the demand for industrial space in HRM against the Working Age to Non Working Age Population. The latter started to decline mid 2011… the industrial demand started to flat line at the beginning of 2008.”

However, Webber and his business partners, John Fraser and Doug Blunden, still believe their property is a great rental opportunity; for them, the numbers just work.

“The most important aspect is proper financing [as we] have seen way too many good projects go down for a lack of capital,” Webber says. “With three solid owners and a built-in anchor tenant, we are somewhat protected from this hazard.”

However, Webber acknowledges that building a new concept was extremely challenging. When a business decides to expand, he recommends tackling the tiny issues immediately before they magnify.

“Getting the small details right before they become big problems is a balancing act that rivals any circus performance,” Webber says. “Designing an efficient, state of the art workplace and showroom for Eastern Turf was a daunting task [but] we are fortunate to have an incredible staff who gave input at every stage and went above and beyond to make the move as smooth as possible.”

Webber also says that before a business expands or renovates, company owners must consider a few important details.

“The next aspect that I believe must be explored is the need for expansion,” he says. “Will it create more business, greater efficiency, new customers, and is it sustainable?”

XL Electric, which focuses on new electrical installations (such as large government, commercial and institutional projects), is also undertaking a location change.

President Nicole Soontiens affirms that building in Burnside is no small financial feat, but the expansion was definitely necessary.

“We have outgrown our current location [and] as we continue to grow, we require more office and warehouse space,” she says. “XL will be occupying approximately one-third of the new building, leaving 20,000 square feet of office and warehouse space for tenants.”

Soontiens says XL has handled rental and leasing properties in the past, so she knows what to expect in the new building.

But Turner cautions that the past is no longer a reliable guide when looking at the future of the leasing market.

“It is delusional to assume that the future will replicate the past and right now that’s the situation,” Turner says. “Governments and investors are proceeding as though the next decade will be a projection of the previous decade. The party is over and we should start preparing for the future now.”

– With files from Ken Partridge, Editor

Organizations: Eastern Turf and Wright Property Holdings, Turner Drake Partners, Drake Partners

Geographic location: Burnside, Eastern Turf, HRM Atlantic Canada

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