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Flex Space as a Revenue Strategy

As a commercial real estate professional, nothing is more frustrating than watching office space stay vacant month after month. Empty space eats away at your time and resources, but it doesn't earn anything in return. Fortunately, there are ways to transform that liability into an asset and maximize the ROI of your investment.

One solution is to turn vacant or underused areas into shared office spaces, also called “flex spaces.” A movement that has gained major traction in cities like San Francisco, Miami, Seattle, and New York, shared office space allows people to enjoy a common workspace while working independently on jobs for different employers. This gives them a sense of community along with the benefits of a fully equipped, stylish office with amenities.

Nearly 2.2 million people will operate out of these shared spaces by the end of 2019, according to an estimate by Deskmag, an online industry magazine.. Demand has already increased for flexible office space and shorter leases in the past few years, and real estate investors currently designate between 15 and 30 percent of a property to flexible workspaces.

In the past, a commercial lease meant a long-term commitment (at least five years), but modern business owners are hesitant to settle into permanent premises in an economy that changes on a dime. Having to sign a lease that lasts longer than their financial projections can easily scare off entrepreneurs. And these small businesses don't necessarily need miles of square footage to fit all their employees under one roof. With the rise of the remote workforce, many firms actually need multiple small offices to support a handful of satellite employees in various cities around the globe, rather than a single spacious headquarters.

Although some landlords are reluctant to trade a traditional five- or ten-year lease for a much shorter one, these new deals offer some significant benefits for both the tenant and the landlord. Those benefits include your bottom line, as shared spaces have the potential to generate two to three times as much revenue per square foot as traditional office space.


Benefits for Property Owners


The most obvious benefit is making money on otherwise vacant or underused property. This goes for shell space and fully finished offices that aren't occupied. Even offbeat areas, such as repurposed warehouses, hold a lot of appeal for digital nomads.

In a quickly evolving economy, companies want to stay nimble and are increasingly aware that a physical workspace isn't as necessary as it once was, especially for businesses largely staffed by remote workers. Many companies that do require a physical presence still want to keep their options open so that they can expand, contract, or reconfigure things as their needs change.

By embracing the whole idea of flex space and non-traditional lease terms, you meet a growing demand and keep pace with how the industry is shifting. Adding “flex space”to your CRE portfolio lets you diversify by combining flexible leases with traditional leases.

Additionally, flex tenants could become permanent. Small startups often get off the ground in shared offices before investing in long-term premises. When it's time for them to expand, they are likely to start looking in their current building and potentially occupy more of your property.


Benefits for Tenants

A flex office keeps your property fresh and flowing with new and interesting people — a lively and ever-changing candidate pool for your current tenants. Many permanent tenants like the idea of having a steady stream of freelancers, independent contractors, satellite employees, and business travelers within arm's reach for the networking opportunities they provide.

Opening a co-working space means outfitting it with the technology, equipment, and furnished meeting space necessary to do business. For a rental fee, other businesses in the building can have access to those perks as well. You could offer the flex space to tenants when they need overflow for big meetings, parties, and events.

If you offer on-location amenities with your co-working space, such as a fitness center, food truck, game room, or childcare, you can offer them to all building tenants (on paid or free terms), which is a win-win. They get onsite services, and your property becomes much more attractive to existing and future renters.


Tips for Getting Started

If you own a space you think would make a great shared office space, then the first decision is whether to rent it to an experienced operator, or manage operations yourself. If you choose to retain control, you can leverage apps like Breather and LiquidSpace, which allow users to self-book co-work spaces on demand.

In addition to turning on utilities and arranging a robust Internet connection, you must also equip the space for doing business. That means offering everything from printers to projectors to paper clips, but before investing in technology and small office supplies, you need to think about flexible office furniture solutions, and — no surprise here — it's best to think flexibly. When you offer desks, meeting tables, and cubicle systems that reconfigure on demand, you open the door to partnering with that ever-evolving, always-adapting workforce that's on the rise.