I have spent most of my time in 2023 thinking about flexible real estate. It is a topic that seems both urgent yet also surprisingly undeveloped. It is both the future and still very much non-existent in most markets. But the questions swirling through my head are many. Let us start by clarifying, this is not about legacy “flex space” which are buildings that have office, warehouse, and/or retail in the same building. This is about the WeWork style of flex space where a tenant is not locked into a traditional lease.
- What is flex?
- Who offers it and do they actually offer flex or just say they do?
- What cities does it exist in and where might it still pop up?
- How would I implement it for a small office versus a large office?
- Does it change employee preferences around how often people choose to come into the office?
- Does it make life more difficult when it is time for renewal or relocation?
- Is flex in the US the same as in Europe, Asia, Australia, Latin America, South America, and CEEMEA?
- Does it require me to have a true booking management tool?
- How do I ensure my company still controls its workplace experience destiny?
- What is flex?
The bookend questions are the crux of it. If there is no clear definition of what flex real estate is, the rest of the questions cannot reliably be answered. Here is the best answer I can come up with to date: Flex is any space where the occupier is not required to sign a traditional length lease with the trade-off of being provided a semi-configurable space using the management company’s furniture, fit-out, and standards. There are also typically shared common areas and reservable spaces for all occupiers of the floor or building.
I have come to believe that my answer is what the market is driving flex to be, but I do not believe that is where the market should be going. Let us take a look at the component parts.
- Shorter lease: Typical leases would be 3, 5, 7, or 10+ years depending on the size of the space and the market. It provides an occupier with a high degree of certainty about their future and their control over their future situation. Moving to shorter leases does provide occupiers with more chances to deal with the current uncertainty around how much space they need long-term, but it also gives the management companies more chances to raise rates. If there is a truism in any type of real estate lease, it is that costs only go up. Over the long term, this seems like a recipe for either higher costs for the occupier or more frequent relocations.
- Semi-configurable space: A typical lease requires the occupier to fit the space out themselves requiring design and capital investment. Letting the management company take care of this means that designs will almost always be suboptimal for colleague experience. Management companies will largely be focused on cost/profit optimization with a secondary focus (at best) on the experience of people in the space. Yes, you get a shorter lease term, but it will be for space with older furniture in a design that is not ideal.
- Shared common areas and reservable spaces: This is the prize for occupiers. This is what allows them to not take 100% of the space they need for peak days by leveraging space shared among many for those busy times. However, increasingly, common area space is not a focus for flex providers because it is not directly monetized. Instead, they put in more on-demand work points that require a reservation and the use of credits. It can be a tremendous benefit but is operationally challenging to both implement and utilize.
In short, you get a shorter lease that may or may not be good for you over any given 5-year time period with a suboptimal workplace design. The benefit is that you theoretically need to take less space bringing your overall cost down, but it remains on you to sell this to your business otherwise you end up taking too much space, paying more for it, and having perks on top of it all without reducing your long-term risk.
It is a difficult proposition at best with where things sit today.
With all that said, flex is almost a no-brainer for some situations.
- Offices in Manhattan. This is a unique market with any option. Buyer beware though because things are evolving RAPIDLY.
- Offices with less than 100 employees and minimal client requirements in relatively good-sized markets are ideal for this. There is enough variability in how your employees work to generate space savings while not so much as to add unpredictable peak day pressures.
- Small offices. Go for it all day if it is an option.
There are surely more easy situations for Flex, but I have not personally encountered them. I would love to know your non-traditional uses of flex in the new world whether it worked as expected or is creating unanticipated challenges. Occupiers have to stick together right now, the world is moving quickly around us!