The COVID-19 pandemic changed professional work environments for millions of businesses and redefined the traditional office for companies of every size. Prior to the pandemic, the majority of companies required in-office attendance. Now, an incredible 73 percent of companies plan to support a hybrid work model, with experts predicting that 30 percent of commercial real estate will be flexible office space by 2030. Startups were no exception to this shift. Accustomed to turbulence and adversity, they pivoted to survive just as so many other businesses but with less resources and time. In the ever-evolving business landscape, the strongest and most agile startups adapted to new economic conditions, and many did it by leveraging flex space.
What is flex space?
By definition, flex space is a short-term lease option in commercial real estate that commonly includes typical business needs such as warehouses, offices and retail space. Flex space challenges the idea of traditional commercial offices, which typically require signing long-term leases that lock in businesses physically and financially. Instead, flex space offers short-term options from one to three to six month-leases to provide a tailored approach to office space based on the company's needs, resources and time frames.
Flex space vs. coworking
In the last decade, the workplace experienced the rise of coworking as an avenue for short-term office rentals and shared amenities between companies under one third-party provider. While coworking provides similar solutions to flex space, there are some key differences. Coworking locations are often branded and require customized build outs within the building location to match specific branding, security and amenity designs, which can be costly, particularly for building owners. Flex spaces, on the other hand, can be located within any building and do not have to be branded by a third-party provider, making it virtually unknown if a company is in a short or long-term lease. In addition, coworking locations require that all companies within the third-party’s office location share amenities such as tech equipment like printers and copiers, the kitchen, lounge areas and conference rooms. Flex space allows for companies to own and customize their amenities as needed. Finally, while coworking spaces may offer flexible lease terms, businesses are often required to pay additional fees to third-party managers, which can add up quickly and hurt companies, like startups, with limited resources.
Flex space for startups
In the last quarter of 2021, 376,000 new businesses were developed in the United States, which is the largest increase in this sector in the past 10 years. With the influx of startups entering the market, there are numerous factors that might cause them to consider flex space as their office solution.
- Flexibility: It might seem obvious, but for companies in the Series A growth stage and on, long-term leases are restrictive, forcing them to plan and predict for growth as well as setbacks. If a startup faces a severe financial downturn, a traditional lease could drain thousands of dollars in precious resources per month. With flex space, shorter and more flexible time frames provide the ability to adjust as needed based on business performance and economic factors.
- Reputation: While many may think of startups being built out of a garage, and some are, it can be challenging to secure the right clientele, funding and reputation without the first impression to match the quality of product or service. Through flex space, startups are able to work in the same buildings, floors and office spaces of global enterprise corporations in desirable locations, an opportunity that demonstrates company standards and was traditionally unavailable to businesses of this size.
- Increased savings: It goes without saying that a short-term lease is a financially sound choice for any startup. In a location like New York City, a 3,000 sq. ft. commercial office space can lease upwards of $16,000 a month. For a startup in a sink or swim industry, a flexible lease can have great financial impact by significantly reducing a new company’s overhead costs. In addition, studies show that 83 percent of U.S. employees prefer a hybrid setup and 76 percent opt out of the traditional work setting, so there is no longer the need to have an assigned desk for every worker. Imagine the amount of underused office space that could be repurposed for technology or warehousing arrangements.
- Employee satisfaction: Startups experience more employee turnover than any other type of business. Not only are employee departure rates higher, they rank twice the national average at 25 percent attrition. The added expenses involved in sourcing and training new talent makes it important for a startup to retain current employees for as long as possible. According to research from HSBC, nine out of 10 employees feel that the ability to work in a flexible situation, such as being remote or hybrid, has the greatest effect on their productivity. By incorporating flex space into a startup’s initial strategy it can be easier for a company to accommodate a hybrid working arrangement for employees to improve overall performance and productivity.
How to choose the right flex space option for your business
The options for commercial real estate are plentiful, but not all listings are created equal. If your startup is currently in the market for office space, beware of some websites that promote “flexible” commercial leasing options, as many, in fact, are not. Keep an eye on small business reviews that will paint a clearer picture.
In addition, it’s important to recognize that every startup is unique and comes with a different set of workspace requirements, so consider a few key questions prior to searching for your flex space.
- How many employees will be in the office location?
- Will you need space for visitors, guests or clients?
- Will you need retail space in addition to workspace?
- What type of amenities will the company require?
- Will there be any third-party fees?
- Will you have access to the landlord?
Startups are constantly evolving, making flex space the perfect match to accommodate fluctuating needs time frames. The benefits of flex space extend across companies of every size and industry, but for startups, flex space is a necessary solution to maximize flexibility across resources, employees and more to remain adaptable in turbulent conditions.
David Menaged is the founder of TROT, a commercial real estate marketplace that’s on a mission to make flex space work better for everyone. Founded in 2020, TROT connects building owners with available space to businesses looking for their next flexible office. Throughout his 30-year career, David has worked with both owners and businesses and realized that there was a disconnect in the way flex space was perceived and rented. He founded TROT as a response to this disconnect in order to reformat the flex space experience for everyone.