When someone says “flex” to a person in CRE, it usually is shorthand for coworking. It means space that is on a short-term agreement that may or may not be shared with others. In most cases, the focus is on smaller use cases meaning the need for a handful of people up to maybe 10k square feet. Of course, it could be larger than that as needed but it typically is not.
There is disruption happening to the definition of flex. While flex has been busy disrupting traditional commercial real estate, corporate occupier needs have been busy disrupting the business model of flex providers. There are a few things that large enterprise real estate functions focus on when building out their real estate strategies:
- Cost (Opex and Capex)
- Term (We do not like renegotiating the same deal every 2 years)
- Risk (The risk of massive changes to the market during our agreement means our business has a foreseeable cost and operational risk on a short turnaround)
Flex is surprisingly strong on Cost. Limiting options for build-out and term work out surprisingly well against taking a traditional lease. Having the flexibility to not oversubscribe on space and leverage shared spaces in a building help even more. Term and Risk are something the current industry struggles with. For businesses that are young or face uncertainty, short-term agreements are really nice to have. It allows you to not be tied to something five years down the road that is impossible to predict today. Larger corporates like budget and location certainty. Telling the leader of a 200-person office that there is a 50% chance they will have to relocate at a higher cost at the end of a two-year lease will cause anxiety. They are happy to pay for a longer period of certainty.
Enterprise operations come with a list of needs that do not look like traditional flex user needs. It is a different world but their needs will soon dwarf the traditional use cases of flex. There will be an influx of new business, leading to an influx of new providers, leading to an influx of new business models, leading to a high degree of disruption. The WeWorks of the world molded the original coworking and flex space options, but I have a feeling a whole new class of providers will soon spring up to take their place.
The area to watch for this disruption will be in non-urban centers. When flex space becomes common and available in suburban areas the new models will be mature (and it should as simply having the option available will quickly attract companies that have no current presence essentially creating new demand from nowhere).