Flex space is an ideal property for first-time investors who’d like to start investing in industrial real estate.
Flex spaces are rapidly growing in popularity due to the increased demand from several sectors. Tenants enjoy the ability to use the same space for a variety of purposes, without the extra burden of CAM fees.
For investors, flex spaces are a high opportunity market, where there is both high demand and low supply. In fact, over 400,000 square feet of industrial space will be created by the end of 2016, yet 60% of that space was leased well before completion.
What Is Flex Space?
Although the definition of flex space can vary, generally it is defined as:
- single story, square or rectangular building
- between 20,000 sq.ft. – 100,000 sq.ft.
- 25-100% office space
- parking ration of 4 to 1
- ceiling heights between 10-18 ft.
- an extra sturdy roof that can handle the weight of extra air conditioning units
- ability to handle increased power demands
- loading docks
- depth between 70 – 120 ft.
Which Tenants Are Interested In Flex Spaces?
While the office market continues to be strong, there is still a trend towards decreasing the amount of permanent space and encouraging company branches to choose co-working spaces instead. Not only does it cost less than maintaining a corporate campus, but research has found that it also fosters innovation.
Startups need space that can accommodate offices as well as research and development. Flex space gives them the ability to use the same space for both while increasing or decreasing the size of the space as needed.
Companies involved in engineering, medical devices, biopharmaceuticals, and any other form of research and development are focused on finding space that can fit both offices and labs. Some companies may have received new funding that allows them to expand their operations, while others are now choosing to perform the same tasks internally rather than outsource them.
Flex space is also cheaper than standard office space, and as the name suggests, allows tenants to be more flexible with how they set up their office and lab spaces. As long as the rules of the lease allow it, they can set up their space in the configuration that’s best for them – without having to worry about disturbing other tenants.
A bonus for investors: these companies tend to stay together, so when you have one type others seem to follow.
Common amenities for Flex/R&D spaces
Generally, flex space tenants require loading docks, although sometimes this space may be shared between tenants. Others require specialized floorings, such as VCT non-static tile flooring and benching, and good ventilation.
Tenants that lease the entire building appreciate being able to control security, heating, and air conditioning, and other common area amenities, since it allows them to tailor the environment to their needs and lower expenses.
Flex space is no longer viewed as the poor stepchild of office space; many companies – and investors – can see beyond the wrapper and recognize the versatility and value industrial flex space offers for both tenants and investors.