How Site Selectors Choose a Location
Overview
Location selection takes on different approaches depending on the situation and the experience of the project team. However, in the end it is a process of elimination that takes place in two phases.
The process begins with either an initial list of preferred locations or specific criteria for which to build a list. Location lists are frequently based on counties for manufacturing and distribution projects and on cities (metropolitan statistical areas or MSA’s) for headquarters, back office and R&D projects. The county-level analysis allows for more defined geography that can be better differentiated (e.g., locations near Interstates).
It is important to note that the local economic development agencies are usually not contacted until Phase II for site visits unless the project team does not have experience in data collection. Also note that real estate-related information is required at several points in the process.
When making real estate decisions, many companies will first seek the availability of existing buildings (unless the building they need is highly specialized) and then consider potential sites in an attempt to reduce startup time, minimize risks and reduce cost.
PHASE ONE OF THE SELECTION PROCESS
Step One
Initial Discussion with Search Team to Define Key Selection Criteria
Step Two
Screen Locations and Profile Top Candidates
This step, consisting of three different screenings, is the point in the selection process where local real estate options are considered.
This first screening is by geographic preferences, which are driven by logistics or other business considerations.
Next, they screen by industry presence, which is an Indicator for determining the presence of certain skills or industry cluster.
The third screening is for resource availability, which considers the following factors:
- Demographic profile (population, growth rates, education levels, etc.)
- Transportation access (air, interstate, rail and port depending on operation)
- Workforce (quantity/quality of available skills)
- Education and training resources
- Overall costs (real estate, labor, construction, taxes, power, insurance, etc.)
- Availability of water, sewer, gas, telecom and electric power
- Ability to recruit staff to an area (quality of life/cost of housing)
- The presence of certain suppliers, competitors and/or industry partners
- Gather examples of available real estate options and lease/purchase costs/terms
The final screening is to develop comprehensive profiles of the top location candidates.
Step Three
Present Screening/Profiling Information to Senior Management
PHASE TWO OF THE SELECTION PROCESS
Step Four
On-Site Field Visits
- Review available real estate and related lease/purchase options (buildings and sites)*
- Evaluate labor and other resources critical to the company’s operation
Step Five
Incentives Negotiation (where available)
- Review available incentives that are applicable to the company’s situation
Step Six
Feasibility Analysis
- Develop Net Present Value(NPV) of costs and incentives (10 or 20-year pro forma)
Step Seven
Final Presentation and Decision