The Death of Small Rental Offices and Stores

The total cost of renting a small office or small store is going up.

Taxes are up. Triple Net, maintenance, parking fees and other fees associated with commercial rentals are up.

Commuting costs to and from work are up. Gas is up. Some customers in some markets may have to choose between going to Your Store and going to Wal-Mart. Or not going to any store and buying what they want online.

Meals at work are up. Childcare, up. Business attire, up. Utilities, up. Furnishings and decor, up. Janitorial and cleaning, up. Employees and office help, up.

This means that a smaller retail store must sell higher ticket items as there is just not enough shelf space to sell discounted items. And most small retail spaces are too small for service businesses like restaurants or beauty salons.

Being too small means one can’t squeeze out enough margin and ultimately profit, the lifeblood of any business. Cash flow-wise the office and store rental numbers don’t match; hence the old expression ‘working to pay rent’. The business model is flawed.

Increasingly many small businesses and professionals are realizing it is not necessary for them to have a physical presence where they must meet always meet customers and clients. There are alternatives.

These smaller businesses that once were located at a specific physical location now locate themselves at a specific location online.

In downtown San Jose, California it is not uncommon to see an outside business sign that is a website address. In San Jose at least the line between real and virtual is becoming thinner and thinner.

Have you recently heard someone tell you on the phone, “go to our website and it explains everything?”

The drop in local commerce is due in part to an increase in web-based commerce. As web sales pass the 10% of total sales mark, it is certainly expected by almost everyone that this number will increase.

As consumers continue to search for product and service information they will replace “local” as the baseline for their purchasing decisions. The concept of local has changed.

As cultures and values change, so do priorities. In some circles it is more acceptable to not have a physical office and less acceptable to have a weak web presence. For many, it is worse to have a bad Google footprint than not to have a “physical” sit-down office.

Besides, a small office makes one look small. Small stores look small. A BIG web presence makes one look BIG. Where is the better ROI? In a Search world, which makes more sense?

So it is not surprising to see half empty small office buildings and half empty strip malls. The question is will small business market pressures prevent the rebound of small rental offices and stores?

The real test will be on the boom side of the cycle after the downturn.

If the small office and small store rentals don’t rebound in the next  kwun tong coworking space upturn, many of these niche businesses will become web-based and no longer have or need a physical presence.

The rest cannot adapt to compete and will simply fade away.

The efficacy of web based commercial applications has given the small store owner an opportunity to compete in larger non geocentric markets. The savings on these web based storefronts and offices versus physical rental offices and storefronts is significant.

For the cost of a small rental office one can put up a somewhat extensive e-commerce site including search marketing. These new, smaller companies can afford to purchase services like search marketing when their rent-paying competitors cannot.

Big advantage web; big advantage in those that can invest in search marketing.

As the costs increase and the advantages decrease, small office and small store rentals become more problematic and difficult when projecting future margins.

The higher the fixed costs the higher the volume of business needed to pay for those fixed costs; only so much volume can be squeezed out of each foot.

At some point, profits are also squeezed out.

The looming picture for the future is one of being able to drive relevant traffic to one’s website. For many companies how they do this will determine their level of success; not the local physical foot traffic.

The old adage: Location, Location, Location takes new meaning in a search society. Being found now has a very different implication. For many small and medium sized businesses, their location is no longer physical.