All About Industrial Flex Space And Benefits To Commercial Tenants

“Flex space” is actually short for “flexible space” and the term is used to refer to light industrial zoned buildings that can be used for both office and warehouse space and can offer multi-functional usage under one roof. There may be “flex office space” or “flex warehouse space”, depending upon which usage has the majority of the total space occupied.

For many occupiers who require the attractive appearance of an office with the functionality of industrial/warehouse space, then flex space is an ideal solution.

Perhaps surprisingly, though, the advent of using, typically single-story flex space is not a new phenomenon and participants in the logistics industry have been familiar with it for a number of years. Previously, such space was known as “multi-client space,”, “public warehousing” or “public space”.

Background of the evolution of flex space

Flex space evolved from continued growth in the logistics industry where occupiers of warehouse units had additional needs for office or showroom space within their demised premises. Sometimes the tenants would also want to have a small workshop for repairs or perhaps pack or assemble goods which they had in storage in the main warehouse areas. Such assembly might be “dry” or “clean” assembly in the sense that either no tools, or only small tools, were used in such assembly and the production was clean (ie no noise or dirt).

It didn’t make sense to have multi-premises in various locations, so some tenants began to convert part of their warehouses to office or showrooms or small assembly areas. Developers soon realised that, with better and more functional designs, they could accommodate the various uses and attract a wider variety of tenants to their properties: and flex space was born!

What is considered “flex space”?

Flex office and warehouse spaces are available in a variety of shapes and sizes, as well as providing space for various uses. As a result, such space is very attractive to an array of businesses. Many flex space developments are aesthetically pleasing to both tenants and their clients and customers.

Typically housed in a single-story building, with windows on the front and direct vehicular access, many flex spaces have a warehouse door or loading dock. The loading dock can be accessed by lorries with containers for ease of loading and unloading.

Units have ceiling height of at least 14 feet up to and beyond 18-24 feet, allowing further flexibility for storage for space users.

There may be a designated office area with ancillary toilets for male and female staff; possibly a showroom or even a small retail area within the leased space.

Alternatively, users can either opt to use the space as purely office space, or a space that’s part office and part storage facility. The ability to customise the space in a flex warehouse allows users to subdivide the internal rental units of the building to suit the size and needs of their operations.

A typical design for flex warehouses may mean that the space only has windows at the front of the building. Some flex units also include docks and loading areas in the back with overhead doors or roller shutters.

flex space

What types of businesses can use or need to lease flex space?

There are a wide variety of potential occupants for flex offices and warehouse and these may include:

  • companies involved in medical research, biopharmaceuticals, and other research and development fields (offices and labs):
  • technological companies, new dotcoms with open plan office and R&D areas;
  • companies which contract building related services such as plumbing, roofing, pest control, electrical services;
  • auto parts retailers or repair shops;
  • art or craft equipment retailers;
  • hairdresser supplies, and so on.

Indeed, it’s not unusual for certain users to group together to create synergies or critical mass so, if one type of user occupies a unit(s), others with similar or ancillary businesses often follow suit.

What are some of the benefits of using flex buildings?

Due to continually rising demand for distribution centres and warehouses since the turn of the century, and especially over the last 12 months or so when online shopping has become a necessity for many, the costs of industrial real estate have increased dramatically. Accordingly, it’s become increasingly difficult for starter or smaller businesses to lease or purchase traditional warehouses at reasonable rentals or prices.

Therefore, demand for occupying flex office or warehouse space has become a huge growth area, with other key reasons for such popularity being:

  • more effective use of usable space: most commercial properties include areas for access to upper floors such as large lobbies for lifts and staircases, hallways etc which take up usable space and have to be paid for in the monthly rental. With flex space the rental is only paid for the exact amount of space exclusively occupied;
  • direct access: many flex spaces have dedicated loading docks or ramps allowing loading and unloading of goods directly to the space occupied. There is no need to go through other areas to access the storage space or workshop, no need to use elevators etc. Furthermore, no time is lost waiting for a shared loading bay to become vacant;
  • the space can be customised: growing companies need to have the flexibility to make adjustments and move inventory around to accommodate their business needs. Or perhaps a showroom needs to be enlarged or the space for office reduced; the flexibility of the space means that this can be accomplished with ease;
  • higher ceiling heights: the ceiling heights in flex space are likely to be between 12-18 feet, with some even as high as 24 feet. Not only does this allow for additional storage space but allows for offices to be built within the space at a mezzanine level to oversee the storage, production or research areas.

Where is flex space typically located and how does it help improve overall business management?

They can be found in lightly zoned industrial business parks or sometimes in the suburbs around traditional office structures.

Two other key advantages not related the building structures/configuration per se:

  • invariably locations of flex warehouses and offices are great: warehouses, logistic centres and the like need great access, need to be close to highways, motorways and other primary means of transport. Flex spaces in well located business parks are not only convenient for business purposes but also for employees and clients;
  • management of the business: with the space located on just a single floor, various employees and departments can interact more easily, help employee bonding and work towards streamlining the functions of different sections of the business.

Are there any disadvantages to leasing flex space?

Perhaps surprisingly, there are few downsides to leasing flex space. Some users may have a safety or security concern as the space is on the ground floor but any such concerns may easily be mitigated by the property management teams being effective.

Of course, the ground floor location also means that any offices have no view but this is space for work not recreation! The lack of view can also be compensated for by having employee amenities such as a small canteen/snack bar or coffee shop/area on site. The absence of underground car parking for employees may also be considered a minor issue.

What is the cost of flex space compared to traditional office space?

Renting flex space is usually much cheaper than renting in a traditional building.

This is quite simply as, if a tenant rents in a purpose-built office building, the rent will be charged on the “gross area” occupied, not the “net area”. The relationship between these terms for area is sometimes called the “efficiency ratio” or the “effective rent ratio”.

As an example, if a tenant rents 10,000 sq feet at $50 per sq foot in a typical office or warehouse building where some amenities are shared with other users, the rent will be $500,000. If the net floor area is 85% of the gross area then the tenant is only really exclusively using 8,500 sq feet. The rent of $50,000/8,500 shows an effective rent of $58.82 per sq ft.

With a flex space building, the gross area and net area will be almost identical (maybe a 1% difference), so the $50 per sq ft rent is just that, $50. Occupiers will also enjoy lower real estate or occupancy taxes as a result.

Such cost control and savings can significantly help a start-up or small business.

So how do you best find and lease find flex space?

The answer is simple: use a professional tenant’s representative! That is, a real estate expert who specialises in working for tenants (not landlords) in respect of their occupational needs.

A tenant’s rep will be able to:

  • several flex space options for the tenant to consider, in terms of locations and space size, rentals and other terms;
  • give advice on the flex space market, demand and supply trends and rentals;
  • help with negotiations on the lease and rental agreement terms;
  • ensure the leasing process runs smoothly.

The flex space market will continue to grow

For landlords, developing flex space can be a great investment. Due to the wide variety of uses which can be accommodated in a flex building, even in a weak market, vacancies should remain low.

For tenants to be able to adapt the space they lease according to the demands of their business is a major positive, as is the fact that they only pay for space actually occupied.