Everything you need to know about Flex Space
You may have heard the term “flex space” before, and it is important to know the significance in flex space in commercial real estate.
In fact, for the beginner and expert real estate investor both, flex space can be a great gateway into the industrial real estate realm as it is extremely versatile in the way it can be used and with the many businesses that these spaces are able to house.
Flex industrial, characterized by multi-functional spaces that can be easily adapted to meet the needs of various businesses, offers a unique and attractive investment option.
Here’s everything you need to know about flex space.
What Is flex space?
Flex space can be loosely defined as any building (typically single story) that has some sort of combination of warehouse space with office/retail space.
These units often have a warehouse door or loading dock with a higher ceiling height - typically around 14-16 feet tall.
Flex warehouses come in all shapes and sizes and, because they have such variable uses, these types of buildings are very attractive to an array of businesses seeking space.
What Types of Businesses Lease Flex Space?
Flex space makes for a great investment because of the wide variety of uses that are able to occupy the space. Here are a few examples of businesses that would lease flex space and how they would use it:
E-commerce Fulfillment Centers: E-commerce companies require flex industrial space to store their inventory, manage orders, and facilitate efficient shipping and delivery processes. These facilities offer the necessary storage capacity, equipment, and logistics infrastructure to meet the demands of online retailing.
Light Manufacturing Units: Small-scale manufacturers often seek flex industrial space to conduct their operations. These businesses typically involve the production of goods on a smaller scale, such as artisanal products, custom manufacturing, or prototyping. They require flexible space that can accommodate their machinery, assembly lines, and storage needs.
Distribution and Logistics Companies: Distribution and logistics companies, including third-party logistics providers (3PLs), rely on flex industrial space to handle the movement and management of goods across various supply chains. They require space for tasks like receiving, sorting, quality control, storage, packaging, and outbound shipping. Flex spaces enable them to adapt to changing demands and handle multiple clients simultaneously.
Research and Development (R&D) Facilities: Companies in industries such as technology, pharmaceuticals, and biotechnology often seek flex industrial space to establish R&D labs. These facilities are equipped with specialized equipment, controlled environments, and collaborative areas to conduct experiments, product testing, and prototype development.
Food and Beverage Production: Businesses in the food and beverage industry, including caterers, specialty food manufacturers, and craft breweries, may lease flex industrial space to prepare, produce, and store their products. These spaces provide commercial-grade kitchens, storage areas, and temperature-controlled facilities for efficient food production.
Art Studios and Creative Workspaces: Artists, designers, and other creative professionals often require flex industrial space for their studios and workspaces. These spaces offer natural light, ample room for artistic endeavors, dedicated storage areas, and communal spaces for collaboration and exhibitions.
Fitness Centers and Gyms: Fitness centers and gyms frequently seek flex industrial space due to their spatial requirements and accessibility needs. These spaces provide large open areas for workout equipment, designated spaces for classes, changing rooms, and office areas for administrative functions.
Auto Repair and Body Shops: Automotive repair and body shops require flex industrial space equipped with specialized tools, lifts, and paint booths. These spaces allow mechanics and technicians to efficiently perform repairs, maintenance, and restoration services on various types of vehicles.
I will say - this list is by no means all-encompassing. Just about any business could take advantage of the opportunities that flex space offer.
Advantages of Flex Industrial Space:
Versatility: Flex industrial space offers a versatile layout that can be easily modified to meet the specific needs of various businesses. It allows for a combination of office, retail, and warehouse space within the same unit, making it suitable for a wide range of commercial activities.
Cost-effectiveness: Compared to traditional office spaces, flex industrial space typically has lower rental rates, making it a cost-effective option for businesses. Additionally, the combined office and warehouse space eliminates the need for separate leases and reduces overall operational costs.
Customization: Flex industrial space allows tenants to customize the layout and design of their workspace according to their requirements. This flexibility empowers businesses to optimize their operations, whether they need more office space, increased storage capacity, or a combination of both.
Central Location: Many flex industrial spaces are strategically positioned in central locations near major transportation hubs, highways, and urban centers. This ensures easy access for employees, suppliers, and customers, which can be advantageous for logistics-driven businesses.
Scalability: Flex industrial spaces often come in a range of sizes, allowing businesses to expand or downsize as needed. This scalability feature caters to startups and growing companies that anticipate changes in space requirements as their businesses evolve.
Disadvantages of Flex Industrial Space:
Limited Room for Growth: While flex industrial spaces offer some level of scalability, there may be limitations to expanding within the same property. Once a business outgrows the available square footage, it may need to relocate, which can be disruptive and incur additional costs.
Zoning Restrictions: Depending on the local zoning regulations, specific types of businesses may not be permitted in flex industrial spaces. Some municipalities might prohibit retail operations, manufacturing, or certain services within these spaces, limiting options for potential tenants.
Higher Maintenance Costs: Flex industrial spaces may require higher maintenance expenses due to the combination of office and warehouse areas. The upkeep of both areas, such as HVAC systems, electrical wiring, and storage infrastructure, can lead to increased maintenance costs for businesses.
Limited Image and Branding Opportunities: Depending on the nature of the business, flex industrial spaces may not provide ample opportunities for branding or establishing a strong corporate image. While commercial office spaces often offer a professional setting, flex spaces may give a more industrial or utilitarian vibe, which may not align with some businesses' desired image.
Is Flex Space a Good Investment?
Flex space can be an incredibly lucrative investment, especially for first-time commercial real estate investors since the spaces are more easily leased, don’t need to be renovated too heavily, and are in such high demand.
Last year in Nashville, the flex space category saw an incredibly low vacancy rate at a mere 3.8%- this statistic alone speaks for itself, but when coupled with the fact that flex spaces see the highest rental rates of all types of industrial real estate makes flex space properties incredibly valuable and stable.
5 Reasons to Invest in Flex Space:
Versatility and Adaptability
One of the key advantages of flex industrial properties lies in their versatility and adaptability. These spaces can be customized to accommodate a wide range of businesses, including manufacturing, warehousing, research and development, and even office space. The flexibility of these properties ensures that they can meet the evolving needs of different industries, making them highly desirable and future-proof investments.Strong Rental Demand
Flex industrial properties have experienced a significant rise in demand in recent years. With the growth of e-commerce and the need for efficient supply chain networks, businesses are increasingly seeking flexible spaces that can be easily modified to accommodate changing storage and distribution needs. As a result, rental rates for flex industrial properties have been on the rise, providing a lucrative opportunity for real estate investors.Diversification of Investment Portfolio
For both beginners and professionals in the commercial real estate industry, diversification is a crucial part of building a successful investment portfolio. Flex industrial offers an excellent avenue for diversification since it is a distinct asset class. By adding flex industrial properties to their portfolios, investors can reduce risk and hedge against potential downturns in other sectors within commercial real estate.Attractive Returns on Investment
Flex industrial properties have consistently shown strong returns on investment. Due to the high demand and limited supply of flex industrial spaces, rental rates are often higher than average. Additionally, the adaptability of these properties means that investors can renovate and repurpose them when necessary, further increasing their value and potential for appreciation.Potential for Long-term Stability
Investing in flex industrial properties can provide long-term stability for investors. Unlike other commercial real estate sectors that may be more sensitive to economic fluctuations, flex industrial properties tend to be more resilient. The demand for flexible spaces remains relatively stable even during economic downturns, making them a reliable and secure investment option.
Leasing Flex Space
If you have a business that has both office/retail and warehouse needs, it is wise to consider searching for flex space.
First, flex space is typically cheaper than traditional office space.
That’s not to say that your building will be lesser-quality, but that you will be paying less for virtually the same product (and likely with bonus warehouse space!).
Along with saving money on rent, you will also have many options on how you’d like to build out your space instead of being restricted to the basic layout of a regular office.
Ways to Find Flex Space for Sale or for Lease
If you are on the lookout for flex space for sale or for lease, there are numerous avenues you can explore to find the perfect fit for your needs. Below, we have compiled a list of effective strategies to help you in your search:
Online Commercial Real Estate Platforms: Utilize popular online commercial real estate platforms such as LoopNet, CREXi, and CoStar to search for flex space listings in your desired location. These platforms often provide detailed information, photos, and contact details for property owners or agents.
Real Estate Agents and Brokers: Contact local commercial real estate agents or brokers who specialize in industrial properties. They have extensive market knowledge and can help you find available flex space based on your specific requirements.
Networking and Referrals: Leverage your professional network by reaching out to colleagues, industry connections, or other business owners who might have knowledge of flex space options available for sale or lease in your area. Referrals can often lead to great opportunities.
Industry Associations and Trade Shows: Attend industry-specific trade shows, conferences, or events to connect with companies or individuals involved in commercial real estate. They may have insider information or be able to point you in the right direction to find suitable flex space.
Local Newspapers and Magazines: Regularly check classified ads or real estate sections in local newspapers and magazines. While this method might be considered traditional, there can still be hidden gems advertised in print publications.
Driving or Walking Around: Take a drive or walk through industrial areas or business parks in your target location. Look out for "For Sale" or "For Lease" signs, as some property owners may not actively list their flex space online.
Social Media Groups and Forums: Engage with industry-specific social media groups and forums. These online communities can provide valuable insights, recommendations, and connections to individuals or companies with flex space available for sale or lease.
Economic Development Agencies: Contact your local or regional economic development agencies to inquire about any vacant or upcoming flex space in their area. They often have comprehensive knowledge of available properties and can guide you through the process.
In the world of commercial real estate financing, navigating the many options for funding a deal can be a daunting task. However, one avenue that stands out for entrepreneurs and small business owners is Small Business Administration (“SBA”) loans. These loans play a significant role in facilitating access to capital for purchasing commercial properties, supporting business growth, and fueling economic development. Understanding SBA loan options can be helpful to anyone looking to invest in commercial real estate ventures.