Flex space is one of the biggest trends in corporate real estate right now. In 2010, when WeWork introduced their concept of shared flex workspaces that catered to startups, freelancers and enterprises it immediately got people’s attention. And in some industries flex space was already highly sought after as a way to combine operations in one location. In the last decade the demand for flex space has grown immensely, in large part because the workforce is starting to work from more places.
As our world becomes more remotely connected and staff increasingly work in cross-functional roles, it’s more important than ever to consider how your workspace can meet the changing needs of professionals. In many corporate buildings, flex space is often the solution.
The recent shift to more remote and hybrid work has made it challenging to know what kind of CRE space businesses need now and in the near future. If you want the answers, advanced CRE analytics tools for space utilization can provide them. You’ll also find answers to common questions in our guide on flex workspaces in corporate real estate.
The flex space definition encompasses different types of corporate real estate, although it’s most often associated with industrial properties that include office space. The traditional flex space meaning is any building that offers different types of use. It can be a combination of warehouse space and retail space, or offices alongside retail and storage space.
The use of flex space is branching out beyond office buildings and warehouses to also include retail areas in shopping malls, conference rooms, convention centers and even manufacturing spaces. Industrial spaces offer some of the biggest flex space opportunities today.
The physical characteristics of flex spaces can vary significantly from one property to the next. They come in all sizes, layouts and configurations. It is worth noting, however, that the footprint of the space that’s actually rented tends to be smaller with flex spaces, which has its advantages.
Where corporate flex spaces are located is expanding as well. You can find them in industrial districts, urban areas and suburban submarkets. The geographic location is a significant factor in the type of corporate flex spaces that are available and the price.
With so many different types of corporate real estate it can be difficult to decipher how flex workspace differs from other workspaces that are already available. As the name suggests, flex real estate is more flexible in a number of ways.
Some businesses look for flex space because they have hybrid or remote workers that are only in-office part of the time. They need flexibility in the number of people using the space and what those workers can do when they are on location. Some business models allow for people to reserve space for only an hour, day or week at a time. In that case, the people who can use the space will change on a regular basis.
Flex real estate space tends to use a very different leasing model than other types of CRE. Both what is included in the lease and the length of the lease are different from traditional CRE leases. For instance, while warehouse leases are typically negotiated every 5-7 years, flex space leases can be as short as a month.
Corporate real estate is categorized by use. Industrial real estate is where goods are produced, and retail space is where goods are sold. Office buildings are where white collar professionals conduct business. Warehouses are spaces for storage and distribution.
Flex space stands out from traditional corporate real estate in its capacity to be used in a variety of ways. Rather than being designed for a single purpose, it’s made to accommodate different types of business operations, which is actually ideal for some companies.
Flex spaces aren’t just open floor offices. They are workspaces that are often designed to accommodate different uses by incorporating open spaces, movable walls and other dynamic features that allow the space to be reconfigured as needed.
While flex spaces offer more versatility in use, it’s common for them to be one floor only when they are part of industrial spaces. Another common flex space layout is office space that is segmented or open and connected by common areas that are shared spaces.
Corporate real estate investments require careful consideration of what kind of spaces tenants will need. Figuring those needs out and the best type of space to meet them isn’t easy, at least not if you’re using antiquated analysis methods.
Corporate flex space analysis requires sophisticated tools that can analyze space utilization on various levels. Factors that need to be analyzed include:
Choosing the right kind of space for businesses with corporate real estate needs is extremely important. While it’s impossible to know the exact needs of a specific business without being a part of their internal team, today’s analytics can give you a better idea of what those needs may be so you can invest accordingly.
Another important consideration is who is most likely to use flex workspaces within a market. Technically, any business or entrepreneur can use corporate flex space as long as the workspaces are set up to meet their needs. However, there are some types of businesses and industries that are more inclined to use flex workspaces.
Companies within the medical and pharmaceutical sector often need space for both office and laboratories. They may also require storage and/or retail space as well.
Businesses that work within research and development (R&D) also need office and lab space. But there could also be a need for manufacturing and warehouse space if the research leads to the development of products.
The fact that flex space offers a company the ability to expand is very attractive to startups and businesses that are in the growth stages. It’s not just a matter of space but also budget. Oftentimes in the growth phase companies don’t have the financial resources for leasing separate spaces to meet all of their needs. A less expensive flex space that offers a combination of uses is an ideal solution.
As the Internet expands, the need for data centers grows. Data centers need a lot of storage space for servers and equipment, but they also need offices for the people that manage it all. A data center can be for one single company, or space can be leased out to numerous companies. It’s not uncommon for data centers to be 100,000+ square feet.
In general, flex space tends to cost less than traditional corporate space. But there’s a reason for that. A flex space lease covers only the amount of space being used by the business, but not the common areas. That means there’s a significantly lower markup and less square footage is rented. In many cases the markup for flex space is just 1% whereas with a traditional office lease it’s up to 15%.
Every market is different, but the average cost per square foot for flex space tends to be lower compared to a similar traditional corporate space. Even if the price per square foot is on the higher end, the reduced square footage can offset the cost.
The average price per square foot of other types of corporate real estate can be an indication of flex space price. The latest data from 2020 shows prices
Average Price Per Square Foot 2020:
Industrial Special Use – $8.47
Manufacturing – $6.71
Warehousing – $6.34
Office Space – $35
Retail – $18.09
Of course, these prices can be high or low depending on the market. For example, industrial space in Atlanta and Dallas averages around $5 a square foot, but in New York it’s $19 a square foot.
The explosive growth of corporate flex space suggests that there are a lot of upsides to this type of CRE. Some of the most commonly cited benefits of flex space include:
When a space is adaptable it can be used by more businesses, which means you should (theoretically) have lower vacancy rates. Even if demand shifts in the corporate real estate markets, with flex space you can be a part of the supply.
More utilization means more production. Flex space is more of a blank canvas that can be configured in virtually any way to accommodate the business’ needs. Not being pigeonholed into a certain workflow that works for the space, the space changes to fit the business’ preferred workflow.
As noted above, flexibility in the amount of usable space is a huge upside for growing businesses that project the need for more space in the near future. Flex space allows these businesses to avoid unnecessary overhead costs of leasing a space that’s larger than needed in an attempt to avoid relocating down the road.
Flex space can be put to good use by businesses that put emphasis on team building and group morale-boosting activities.
As noted above, one of the biggest flex space benefits for businesses is lower cost per square foot and overall cost because only the space being used is actually being rented.
More flexible lease terms can also be a major benefit. Instead of the long-term commitment that comes with traditional CRE leases, it’s not uncommon for flex spaces to be leased anywhere from one month to three years.
Centralization of operations comes with a number of benefits in and of itself. Employees can collaborate across departments and divisions more easily. The business can also streamline procedures to reduce operation costs. The logistics are simplified, freeing employees up to focus on other business needs that can boost productivity, efficiency and more.
Flex space offers a lot of advantages, but as with any type of corporate real estate, there are going to be drawbacks to flex real estate. While corporate flex space is extremely versatile, it’s not the best workspace for every business.
Because flex space is often created from industrial properties, they tend to have far less security in place compared to a corporate office building. The fact that many flex spaces are one-story is another security factor since the spaces are easier to access.
If you aren’t sure whether or not flex space would be an attractive option for likely tenants further analysis is needed. You can start by doing in-depth research into a market area to determine which industries are on the rise and if they are going to need flex space. RefineRE’s Workplace Analytics Module is another tool that can provide insight into how tenants currently use workspaces. That information can tell you how likely they are to benefit from flex space and whether another type of space would better suit their needs.
We’ve come to the ultimate question that many corporate real estate teams are asking themselves. Now that you know the flex space definition and have a basic understanding of what flex workspaces involve, you may still be wondering if your corporate real estate properties should have them. RefineRE can help provide an answer.
The FLEX module was purpose-built for determining if it makes sense to transition to flex space and gauge the demand for flex space within a market. With RefineRE’s FLEX Solutions tool you can:
It’s the information that’s needed to make informed decisions before making the switch to flex space. It’s even possible to identity cost-saving opportunities and ways to improve efficiency by making spaces more flexible.
FLEX is just one of the corporate real estate solutions from RefineRE. To see if you should join the countless organizations that are including a flex option in their portfolio strategy, contact us for a quick 15 minute consultation.