Entrepreneurs Need Flex Space, Not Long Leases
Several years ago, a friend was forced to shut down his very successful PR agency during the 2008-09 recession because he was no longer able to afford the $13,000/month rent on his downtown office space.
He had suffered a couple setbacks just as the recession started and might have been able to recover, but he was locked into a long-term lease on what he had previously been able to afford. The problem was he had five more years remaining on the lease, and he wasn’t making the revenue to be able to pay his dwindling staff and also justify staying in a 10,000 square foot office.
Since his commercial landlord wouldn’t let him just break the lease, he had to shut down his company entirely. It was the only way he could get out of the lease at all.
This new pandemic-caused recession is seeing many small business owners and entrepreneurs facing similar problems. They’ve been working from home or taking turns in the office to avoid contamination, but they’re also finding they didn’t need an office at all, let alone a big office.
Some companies have taken the steps of not renewing their commercial leases, and still others are trying to find ways to sub-lease their space or even break their lease entirely, eating the necessary cancellation fees, lost damage deposits, and so on.
All of this makes me think commercial real estate may need to change how they do business and adopt a flex space mindset that more or less lets tenants operate on a month-to-month contract, or even signing a lease for just a few years.
Flex spaces are usually centered around common areas, such as a kitchen and conference room. You can see flex spaces in office suites, where you can rent a small office or group of offices, and share a receptionist and mailing address, as well as normal office amenities.
You can also find coworking spaces that work on the same principle: several desks in an open area, with wifi, shared amenities, and other perks.
One benefit of flex spaces is that they’re easier to decorate and manage: All you really need are clean floors, painted walls, and wifi. In some cases, you don’t even have to pay for expensive office furniture, instead leasing it or using the Furniture as a Service (FaaS) model. (Or even let tenants bring their own furniture for longer leases.)
Even coworking spaces are a type of flex space, although everyone’s desks are out in the open. But the tenants still share a kitchen, conference room, and bathrooms. Neoware Studio’s coworking space even has a living room setup.
Also, in traditional leases, tenants will (justifiably) expect the building owner to make any major renovations and decorative changes, all of which cut into the bottom line. With flex spaces, you only need to keep the space clean and well-lit, but if someone is only planning to stay for a few months, then they can just take what they’re offered.
(Still, making a place look nice will go a long way to attracting more tenants.)
How Can Entrepreneurs Use Flex Space?
Flex-spaces are an even better offering for entrepreneurs, because they don’t require long-term commitments, and they cost a lot less than traditional leases. Plus, you don’t have to come up with three month’s rent before you ever set foot in the place.
Entrepreneurs who are launching new businesses can also set up a professional space without having to spend a lot of capital equipping and setting up an office — everything is already in place and ready for you on day 1.
(The first time I ever started a business with my father-in-law, we spent several hundred dollars buying office furniture, items for the kitchen, and the necessary communication devices that companies needed in the early 1990s. I don’t want to embarrass myself and say it was a fax machine, but it was a fax machine.)
Short-term leases also let you do things like ride out a pandemic in temporary offices. They can serve as a real estate stepping stone as your company continues to outgrow spaces year over year. And startups can work in a more professional and quiet environment than their homes.
Since flex spaces are much less expensive than traditional leases, companies can shift more of their revenue toward keeping their company afloat instead of worrying whether they’ll be able to pay their high commercial rent for the next five years.
To learn more about coworking and how it can help you transform your business, please visit our website at NeowareStudios.com.
Photo credit: Cummins Properties (Flickr, Creative Commons 2.0)