You have probably heard the term “flex” tossed around in CRE discussions. But what exactly is this type of property?
A flex space (or flexible property) is essentially a hybrid of office and industrial. This CRE concept is quickly gaining traction, especially among investors looking for safe, future-ready opportunities.
Flex spaces that blend office and industrial functions can be standalone buildings or part of larger industrial parks.
The typical layout is an office space in the front and a warehouse or storage space in the back — a setup that appeals to a wide variety of businesses, from construction and manufacturing to e-commerce and medical logistics.
The ability to combine office, warehouse, and even light manufacturing under one roof is a major reason flex spaces have performed so well even during challenging periods for CRE, like the 2020 pandemic.
The differences between flex spaces and traditional offices
More flexible leases
Traditional office leases often involve long-term commitments, which can be problematic for both tenants and landlords.
Tenants are locked in regardless of how their business evolves, while landlords may find themselves (1) stuck with a tenant who no longer fits the space, or (2) unable to easily re-let the space if the tenant leaves early.
In contrast, flexble spaces have flexible leasing terms, with short-term leases (even month-to-month options) common.
This is attractive to tenants who are hesitant to commit long-term because they have plans to scale or pivot.
For CRE investors, this flexibility can mean access to a broader tenant pool and the potential to increase occupancy rates, as it caters to a wider range of businesses. While there might be more tenant turnover, the demand for flexible space can offset this.
Also Read About: Future of Office Space
Adaptable design
Traditional office spaces usually have fixed layouts: set offices, designated meeting rooms, and specific work areas. Making changes to these layouts is often expensive and time-consuming.
This is less of a problem in flexible spaces that are designed for adaptability. Open layouts allow tenants to customize the space to their changing needs — they might use the space as an open-plan office one month and convert it to a mix of storage and light manufacturing the next.
This is also a win for CRE investors, as the inherent adaptability increases the property’s long-term value and marketability. The property can cater to changing tenant needs over time to minimize vacancy periods and maximize ROI.
And because flex properties are easier to repurpose, they can be redesigned and remarketed in response to changing market demands, which further enhances the investment’s potential.
Also Read About: Tenancy in Common (TIC) in Commercial Real Estate
Is now the right time to invest in CRE flex spaces?
The broader shift towards more adaptable business models makes CRE flex spaces more relevant and potentially more lucrative than ever.
Businesses across various sectors are now looking for adaptable real estate solutions that can accommodate their rapid operational changes and growth.
For CRE investors, this makes flex spaces a solid office investment opportunity right now — these properties not only meet current market needs but also promise adaptability for future changes.
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Benefits of CRE flex space
Resilience to downturns
Flex CRE buildings proved to be good investments during the pandemic. Unlike traditional office buildings with shared common areas, flexible spaces often offer private access for each tenant — including separate entrances, private offices, bathrooms, and even walkways.
This allowed many small businesses to operate safely during health concerns and showed how well-suited flex spaces can be for such situations. Plus, the mix of tenants in flexible spaces, from construction companies to restaurants, helps landlords manage risk.
Customizable at a low cost
Modifying flex spaces is much cheaper than renovating a traditional office. For example, improvements in typical office spaces can cost $20 to $40 per square foot, while flexible spaces are usually between $5 and $20.
Leasing rates are also lower, making them a very affordable option for businesses needing a tailored workspace.
Triple net (NNN) leases
Flexible spaces also often use triple net leases where tenants pay for taxes, insurance, and common area maintenance, which reduces the landlord’s financial burden.
Landlords are usually only responsible for major repairs. This makes this type of CRE asset simpler to manage and potentially more profitable.
Strong rental demand
The continuous growth of e-commerce — which has also created a bigger need for efficient supply chains — has made flexible industrial buildings high in demand.
These properties often command higher rents due to their strategic importance, therefore providing CRE investors with good opportunities for high returns.
A good portfolio diversifier
Adding flexible industrial properties to your CRE investment portfolio can reduce some of your risk and protect you from downturns in other market segments.
Solid ROI
The limited supply and strong demand for flexible spaces often result in excellent returns on investment. Because they are versatile, they can be renovated and repurposed quickly, which increases their rental and resale values while creating significant appreciation potential.
Why are flex spaces attractive to CRE tenants?
One major reason is cost. They’re simply more affordable overall compared to traditional office spaces, which is a big plus for companies watching their budgets.
Traditional offices often involve long leases and big upfront costs like deposits, maintenance, and furniture, whereas flexible spaces usually have shorter and more flexible leases, so your tenants only pay for the space they need when you need it.
Many flexible spaces also include utilities like electricity, internet, and cleaning in the rent, and some even come furnished.
This means businesses don’t have to invest heavily in furniture or equipment. This frees up resources for growth especially for startups and budget-conscious companies.
Scalability is another key advantage that makes flex spaces a solid CRE investment.
Many businesses (especially startups) grow quickly and unexpectedly — they might suddenly need more office or warehouse space within just a few months.
Traditional leases are often too restrictive for companies that can’t see themselves locked into a fixed space for years. In contrast, flexible spaces let businesses easily scale their space up or down.
If a company grows, it can just rent more space in the same building and avoid the hassle and expense of moving. For example, a growing startup that starts with a small team in a shared workspace can easily move to a larger office within the same facility without a new lease or a complicated move.
Will flex CRE only get more popular as remote work rises?
Industry analysts certainly think so. With more people working from home, companies are increasingly using hybrid work models — a trend that makes flexible workspaces better than traditional offices, as they allow a balance between remote work and in-person collaboration.
Even with remote work, teams still need places to meet and work on projects together. Flexible spaces provide that environment. These spaces help teams collaborate in person when needed. They’re also great for hybrid work.
Companies can rent only half the space they need, for example, to avoid the cost of a sprawling but potentially empty office.
Flex CRE allows them to support in-person interaction without the long-term costs of traditional leases.
How to find flex spaces for sale
If you are interested in adding a flex building to your CRE portfolio, you need to know where to look. Here are some practical ways to track down a flex space that meets your investment criteria:
Online real estate platforms – CRE listing websites are increasingly featuring flex properties for sale in key markets. These sites provide all the details you need to get the ball rolling, including photos, specifications, and the broker’s contact information.
Agents and brokers – Connect with agents and brokers who specialize in industrial real estate. They’re clued into what’s available and also understand the current market dynamics, so they can guide you to properties that tick all your boxes.
Networking and referrals – Sometimes the best sources are people you know. Tap into your network of fellow CRE investors. They might have leads on flex spaces that are up for grabs and not yet listed on the mainstream market.
Get involved in the CRE community. Industry conferences, trade shows, and other networking events are goldmines for connections and insider information. You can learn about unlisted properties and meet influencers who know where the good investments are hiding.
Local newspapers and magazines – Old school can still be useful especially when it comes to CRE listings. Check out the classifieds in local newspapers and real estate magazines. They often list properties that you might not find online.
Exploring neighborhoods – Put some miles on your car or get some steps in by touring the neighborhoods where you want to invest. Look for “For Sale” or “For Lease” signs on properties. Some owners prefer to market their spaces this way rather than listing them online.
Social media groups and forums – The internet is a treasure trove of information. Join forums and social media groups focused on real estate investment. Members often share tips and potential deals about available flex spaces.
Economic development agencies – Touch base with local economic development agencies that have a pulse on the economic activities in the area and can provide information about available or upcoming industrial spaces that could be perfect for your needs.
Get financing for your flex industrial space
If you need CRE funding solutions for a flex property, don’t hesitate to contact our team here at Private Capital Investors. We want to hear about your project.
