As commercial real estate trends toward shorter leases, many landlords are feeling some anxiety about the instability they feel is coming.
Instead of being anxious or worrying about instability, however, landlords should be excited about the new opportunities being opened up by the rise of flex-space.
Flex space offers small and mid-sized businesses that can’t afford a more traditional office space a chance to build their own office culture. While co-working spaces are a popular choice, they’re branded for the company that owns the space, and they don’t meet the needs of a company that wants its entire staff to be in one place.
Flex spaces offer leases anywhere from one month to three years in length for small office suites with shared conference rooms and kitchens. They’re popular with small to mid-sized businesses but larger, established companies like them, too. Especially as a way to provide their employees with a workspace while renovations or construction render their permanent office space unusable.
Benefits of Flex Space
Benefits for the tenants are clear: you get exactly the space you need, without a long term commitment that might hamper your growth.
Commercial real estate companies may have a harder time seeing the benefits, at first. Flex space requires some renovation on most properties as the physical space will need to be designed for tenants to expand (or contract) quickly.
However, flexible leases cater to an underserved market and can offer many real estate companies a competitive edge. This is an excellent way for companies with older buildings to compete with newer construction in their area.
The Flex Space Mindset
Obviously, as the owner of a flex space building, some things have to change about the way you manage your property.
For instance, it would no longer make sense for you to buy office furniture if the tenant will only be there for three years or less. Still, you need your flex spaces to be turnkey, and so furniture rentals and furniture-as-service companies become your best option.
Flex Space is an Amenity
Flex space is rapidly becoming something that tenants expect as an amenity in the modern workplace. Just like comfortable common areas with cushy seating and clean bathrooms, flex space is increasingly seen as a vital part of a building.
Even a tenant that has a long term lease might want flex space, because they may find themselves with a temporarily enlarged workforce for especially big projects. Having flex space available to them is a big plus.
Flex space is the future of commercial real estate rentals, at least partially. Plenty of companies, even once they’re established, like the idea of not being tied down to one location for too long. Since their workspace needs are becoming increasingly unpredictable, a flexible lease that allows them to acquire more office space or pay for less as they quickly expand and contract is an important amenity to have.
Understandably, landlords and commercial real estate companies might be nervous about offering flex space. Compared to a more traditional lease, it seems like a less stable option. However, demand for flexible leasing is going up, while demand for traditional leasing is either staying flat or decreasing depending on the market you’re in.
That means that, if anything, flexible leasing options offer more stability and more guaranteed income for landlords these days than traditional leases. Just because a tenant only signs a three-month lease, it doesn’t mean you’ll only have that tenant for three months.
So long as you can continue to meet their needs, they’ll likely sign up for another three-month lease as soon as the first one runs out. They may also opt for a longer lease. The basic rules of tenant retention haven’t changed at all. Be a good landlord, work with your tenants to make sure their needs are met and offer a fair price, and your tenants will keep renewing their leases with you.
Flexible leasing only seems less stable because the length of the lease is shorter. You may see a higher rate of turnover in tenants, but you’re just as likely to see most of your tenants renew their leases over and over again if you’re a good landlord.
And frankly, a high turnover rate isn’t inherently a bad thing, if the reason they don’t renew is that they’ve outgrown flex space as a company. As long as you’re offering flex space, you’ll get new tenants just as quickly.