Flexible Workspace

What is Flexible Workspace?

Flexible workspace is a broad term for office environments that provide businesses with adaptable space solutions, often on short-term leases or membership models. Unlike traditional office leases that typically span 5-10 years, flexible workspaces allow companies to rent space for days, months, or a few years, offering greater agility. This model has grown significantly in popularity due to changing work patterns, the rise of remote work, and the need for businesses to quickly adapt to market conditions. It caters to a wide range of users, from freelancers and startups to large corporations seeking satellite offices or temporary project spaces.

Types of Flexible Workspaces

The flexible workspace sector includes several distinct models, each with unique features and target audiences:

• Coworking Spaces: These are shared office environments where individuals or small teams from different companies work alongside each other. They typically offer open-plan areas, shared amenities like kitchens and meeting rooms, and a sense of community. Members often pay a monthly fee for access.
• Serviced Offices: Also known as executive suites, these provide fully furnished and equipped private offices that are ready for immediate use. They come with a range of services, such as reception, administrative support, IT infrastructure, and utilities, all bundled into a single monthly fee. Leases are typically shorter than traditional offices, often from 3 months to 2 years.
• Hybrid Models: Many operators now combine elements of coworking and serviced offices, offering a mix of private offices, dedicated desks, and hot-desking options. This allows for maximum flexibility, catering to diverse business needs within a single location.
• Managed Offices: A company leases a dedicated office space, but a flexible workspace provider manages the fit-out, operations, and services. This offers the privacy of a traditional office with the operational ease of a serviced office.

Benefits for Businesses and Investors

For Businesses (Tenants)

• Flexibility: Ability to scale up or down quickly, adapting to growth or contraction without penalty.
• Cost Savings: Reduced upfront capital expenditure (no fit-out costs) and predictable monthly expenses covering utilities, internet, and services.
• Amenities: Access to high-quality facilities like meeting rooms, lounges, and event spaces that might be too expensive for a small business to lease independently.
• Community and Networking: Opportunities to connect with other professionals and businesses, fostering collaboration and growth.

For Investors (Property Owners/Operators)

• Higher Rental Yields: Flexible workspaces often generate higher revenue per square foot compared to traditional long-term leases due to premium pricing for services and flexibility.
• Diversification: Investing in flexible workspace can diversify a real estate portfolio beyond traditional office, retail, or residential properties.
• Increased Asset Value: Properties with flexible workspace offerings can be more attractive to a wider range of tenants, potentially increasing their market value.
• Resilience: The ability to adapt to market changes by adjusting pricing, services, and space configurations can make these investments more resilient during economic shifts.

How Flexible Workspaces Work for Investors: A Step-by-Step Approach

Investing in flexible workspaces involves more than just buying a building; it requires understanding the operational aspects. Here's a simplified process for a beginner investor:

1. Research the Market: Identify areas with high demand for flexible work options, considering factors like population density, business growth, and existing competition. Look at average membership fees and occupancy rates in similar spaces.
2. Acquire a Suitable Property: Seek commercial properties that can be adapted for flexible use. This might be an existing office building, a retail space, or even an industrial building that can be converted. Consider location, accessibility, and potential for attractive design.
3. Design and Fit-Out: Plan the layout to include a mix of private offices, open coworking areas, meeting rooms, and common spaces. Invest in quality furniture, reliable internet, and essential amenities. A well-designed space attracts more tenants.
4. Establish Operational Model: Decide whether you will operate the space yourself or partner with an experienced flexible workspace operator. Self-operation gives more control but requires significant management effort, including marketing, sales, community management, and maintenance.
5. Set Pricing and Membership Tiers: Develop a clear pricing structure for different services (e.g., hot desk, dedicated desk, private office, meeting room rental). Consider daily, weekly, and monthly options to maximize revenue and attract diverse clients.
6. Market and Manage: Actively market your space to attract tenants. Once operational, focus on providing excellent service, fostering a positive community, and managing day-to-day operations, including maintenance, billing, and tenant relations.

Real-World Investment Example

Let's consider an investor, Sarah, who buys a 5,000 square foot commercial building for $1,500,000 to convert into a flexible workspace. She invests an additional $250,000 in renovations and fit-out, bringing her total investment to $1,750,000.

• Total Investment: $1,750,000
• Operating Expenses: Sarah estimates annual operating expenses (utilities, internet, cleaning, staff, marketing) to be $150,000.
• Revenue Streams: She plans for a mix of private offices and coworking memberships:

• 5 private offices at $1,200/month each = $6,000/month
• 30 coworking memberships at $300/month each = $9,000/month
• Meeting room rentals and other services = $1,000/month

Assuming an average 80% occupancy rate for the first year:

• Total Potential Monthly Revenue: $6,000 + $9,000 + $1,000 = $16,000
• Actual Monthly Revenue (80% occupancy): $16,000 * 0.80 = $12,800
• Annual Revenue: $12,800 * 12 = $153,600
• Net Operating Income (NOI): $153,600 (Revenue) - $150,000 (Expenses) = $3,600

In this example, the initial NOI is low, highlighting the importance of achieving higher occupancy and managing expenses. As occupancy increases to 90% or 95%, the NOI would significantly improve, demonstrating the potential for strong returns once established.