Articles

Real Estate Best Practices: Operating Near Partners and Competitiors

May 15, 2006
By Dan Gonzalez (Executive Vice President) and Mike Norris (Senior Associate) of Scheer Partners

Anyone that has sat in traffic along the Toll Road has probably noticed a pattern—many of the area’s security companies are congregated there. Drive deeper into Reston and Herndon or further south into Chantilly, and you’ll find the major defense contractors, either in secure stand alone facilities or high profile buildings near the amenities. Proceed further in to Tysons and you’ll probably run into your accountant, lawyer or commercial real estate broker. This dynamic has a clear effect on the real estate market—areas (known as submarkets) are becoming more distinct; describing how the market is doing as a whole is becoming less and less productive than focusing on the sum of its parts. However, from the prospective of a technology or government service company, this dynamic is the result of the strategic business decisions made by their peers, and that need to be considered when making their own real estate decisions.

Proximity to customers and employees (both current and future) is certainly a key driver for companies, but locating near competitors can be beneficial, particularly for emerging technology companies. As many Virginians know, the most glaring example of like companies congregating together in the Washington metropolitan area is the biotech industry along the I-270 Corridor. In this case, the government customer is NIH or FDA, but the State of Maryland and Montgomery County’s decision to develop a substantial infrastructure to incubate the region’s life sciences industry made the Corridor the go-to area for biotech companies. There is some existing lab space in Northern Virginia and certainly some opportunities for it to be built, but the danger for an emerging company is in recruiting. Prospective employees want to locate in an area where they know if their company fails, they won’t have to move to find a similar one. Therefore, the Commonwealth is likely to continue to get much longer looks from large and established biotech companies and organizations like Eli Lilly and Howard Hughes Medical Institute, rather than startups.

With the high priority the federal government has placed on teaming arrangements, many similar government contractors have found themsevles competing on one project while partnering on another. This environment has created some synergies with not only locating near partners, but sharing space with them. A popular example is the mentor-protégé program, whereby a growing company with a complementary technology or attractive status will enter into a mutually-beneficial relationship to generate more business.

So what is the challenge with locating near your peers? Most notably, you can get lost in the shuffle and fail to build your identity. A company can really establish its own presence in a more eclectic building or an unusual location. The small technology company in a townhouse with exterior signage near a landmark or the more established one that moves further West or South to develop its own building may sacrifice the high profile address, but it gains the ability to distinguish itself.

Location is just one of the strategic decisions which, along with the financial, cultural and operational factors, must be considered when examining a company’s commercial real estate situation. It is factor that is usually thought of and decided upon quickly, but it is one that should be carefully considered with a professional to avoid having to endure an unnecessary expensive relocation in the near future and risking a downturn in an ever-changing and separating real estate market.