Flexible workspaces are no longer just for startups and freelancers. As companies are embracing hybrid work, flexible workspaces are becoming a popular solution to make that happen. More companies are now working in blended environments with some staying remote and some returning in-person. They bring greater flexibility, broader geographic coverage, and reduced costs to companies, which is why many companies increasingly choose them over traditional offices.

Workplace flexibility has been a key draw for workers for some time. Workers have repeatedly emphasized the importance of that flexibility and what it means for them as they choose jobs, decide whether to remain in a given position and try to balance work with their everyday lives. As a result, companies are investing more and more in creating interesting, custom-branded spaces.

But what is a flexible workspace and how does it help occupiers as they adapt to a hybrid work model?

Return to the Office

As the world moves on from COVID-19, working life has returned to many of the pre-pandemic norms. At least for the foreseeable future, the office will likely remain the hub of business activity. However, flexible work-from-home will allow many employees the convenience of skipping the commute a few days a week. The trend toward returning to the office will see millions of employees working in the office in person at least some days each month as many employers are embracing a flexible work-from-home model.

Some executives and leaders believe productivity increases when workers are in the office together, while others hope to increase in-person collaboration. If your business plans to introduce other measures that encourage flexibility in conjunction with a return to the office, such as hybrid work or alternative work schedules, announce this to employees as well.

What Are Flexible Workspaces?

A flexible office space is a type of workspace designed to provide employees with a variety of different places and ways to work. Unlike traditional offices with fixed and assigned desk positions, workers in a flexible office space can choose the area of the office that best suits the type of work they need to do at that moment.

Flexible workspaces can be easily rearranged to accommodate changing business objectives, or quickly scaled up and down to fit teams of different sizes. These kinds of dynamic office spaces are typically designed to be used in conjunction with flexible working arrangements to provide teams with the freedom to work where, when, and how they want.

Who Uses Flexible Workspace?

Even now, the flex workspace market battles the perception that it is solely for small businesses and that corporations and larger organizations do not belong in shared spaces. The reality is that companies are trading in leased buildings for flex space. In fact, demand last year grew by 35% in the US and 30% in the UK as larger firms sought out space in flex workspace centers operated by a third party.

They are choosing to use this space for large project requirements, or for the benefit of taking on more space for a year or two without the risk of committing to a long-term lease. For these firms, flex workspace is a low-risk way of expanding and taking on more staff without needing to commit to a more rigid model of occupancy – the lease.

Types of Flexible Workspaces and How They Work

When we think about the traditional office space, we know what it looks like: most likely an open plan and less often cubicles. Remote workspaces come with a greater variety of layouts and types of spaces, from open space to private spaces. Let’s go over some of the most common ones:

• Traditional office space – While lacking many of the benefits that other types of flex office space provide, traditional office space still fits within the definition of flexible office space as long as the lease terms are within three years.
• Shared office space – Shared space is another term that is changing quickly with the times. These types of shared spaces enjoy informal sharing agreements and subleasing a portion of another organization’s office space.
• Coworking space – This is a subgroup of shared space, where virtually everything except a dedicated desk or office suite is shared with other companies, teams, or individuals.

Coworking spaces include:

• • “Floating” or shared desks
  • Dedicated desks
  • Private offices in a coworking space (previously referred to as executive suites)
  • Office suites in a coworking space (multiple offices)
  • Custom buildouts by a coworking provider, also called a flexible headquarters

How Are Flexible Workspaces Affecting the Real Estate Industry?

An overriding trend has been the shift towards service-based models, in many cases enabled by digital innovation. Commercial real estate is undergoing an evolution as increased demand for flex space and innovation around the office models for procurement and operation are leading to profound change; with much of this centered around the idea of workspace as a service.

This growth in more flexible working, enabled by technology and the changing attitudes of business, has seen how organizations find and occupy offices radically evolve.

Increased workplace flexibility means immense changes within many workplaces.

Need For Less Overall Real Estate

Since many employees are conducting their work from home or virtually, facility managers may find that their employees may need less actual physical space in their workplace environments in order to conduct their usual job tasks. This may result in several changes to the status quo.

Changing Needs for Communal Spaces

With meetings, including client meetings, taking place virtually, many facilities managers are finding that there’s less need for communal space within the office. Meeting rooms may not need to be as large, since many people will be connecting with the office via a virtual connection.

The shift to virtual workers, or flexible work schedules, also means that many facilities have smaller break room needs. On the other hand, it may mean that facilities managers need to carefully consider where people will gather when they are present within the physical office environment, and make sure there is adequate space for employees on the days when everyone needs to report for a specific reason.

Increased Flexibility Changes Security Needs

As flexibility increases across the workplace and employees spend less time in the physical building, security needs are changing along with those demands. Your on-site security and reception staff might not have the chance to get to know every employee personally. They won’t see them coming into the office every morning or have a chance to get to know their needs on a personal level.

Tracking and monitoring software can make a huge difference in your overall security since you can better keep track of exactly where employees are and who is in the building. This strategy can also make it easier to continue to stop security threats at the door, rather than mistakenly allowing them to get through.

Why Is Flexible Space So Popular

Businesses, large and small, have begun to gravitate towards flexible space for a variety of reasons. First and foremost, it provides more agility for organizations, helping them seamlessly expand or contract over time. Shorter agreement terms carry less risk for an organization, whereas a complex, multi-year lease can essentially act as an anchor when mobility is a critical need for most enterprises.

Benefits for Businesses

Besides agility and mobility, the different types of flexible space also provide a range of benefits for businesses that longer-term, traditional leases lack.

• Lower costs/overhead
• No long term lease
• Convenient scalability
• Fully furnished spaces
• Fast solutions to enter new markets
• Improved employee retention

Benefits for Operators & Landlords

By embracing the benefits of flexible workspace, landlords can not only future-proof their assets, but also best stand out at this crucial moment when lockdown is easing and recovery begins.

1. Increased occupancy and revenue
2. Enhanced tenant satisfaction and loyalty
3. Improved operational efficiency and sustainability

Why Choose IPA Commercial Real Estate?

Choosing the right commercial property management company can make real estate ownership a breeze. For people who own commercial and industrial properties, working with a respected property management company can be a great resource. With 30+ years of experience in the Inland Empire, the experience of the IPA Commercial Real Estate team provides a depth of knowledge regarding maintenance and project costs.

Just like management in any other business, a respected management company can monitor the care and financial requirements of any property. We can also help evaluate your rent structure. IPA Commercial Real Estate very focused on client properties and tenants and we have the skills and knowledge to make your ownership experience easy and pain-free.

We offer 24/7 Service from our team day or night! Call IPA COMMERCIAL REAL ESTATE at (951) 686-1462 to discuss how we can help you. Let us show you how to add value to your property.

Real estate is one of the most viable investment options for most investors. It is straightforward to understand and invest in those assets. However, they come with their own set of rules and benefits. When choosing them, investors must know the returns related to real estate. Consequently, they must study the income and expenses for these investments.

If you’re considering leasing retail space, it is critical to have a comprehensive understanding of the associated costs. From monthly rent and utility expenses to CAM fees and insurance, retail leasing space can quickly become a significant financial commitment.

Whether you are a commercial real estate investor or tenant, staying abreast of the complexities surrounding retail space leasing costs can be challenging.

Below, we examine retail leasing expenses, enabling you to make insightful decisions and avoid unexpected costs.

Types of Commercial Leases

There are several types of commercial leases available, each with its own benefits and drawbacks. Below are some of the most common types:

• Gross Lease: An “all-inclusive” lease where the tenant pays a fixed monthly rent that includes all operating expenses such as utilities, insurance, and property taxes.
• Modified Gross Lease: A lease where the operating expenses are split between the tenant and landlord, with the exact allocation negotiated between both parties.
• Single Net Lease: The tenant is responsible for paying base rent, utilities, and their pro rata share of property taxes (the ‘single net’), while the landlord is responsible for paying all other operating expenses.
• Double Net Lease: A lease where the tenant pays rent, property taxes, and insurance premiums, while the landlord is responsible for maintenance and repairs.
• Triple Net Lease: A lease where the tenant is responsible for paying rent, property taxes, insurance premiums, and all maintenance and operating expenses associated with the property.

Expenses to Consider When Leasing Retail Real Estate

Commercial leases are vastly different from their residential counterparts. While residential leases are typically shorter in duration and cover fewer variables, commercial leases are longer and involve more complex negotiations. Additionally, commercial leases often require a more significant financial commitment from the tenant, including higher security deposits and additional fees.

The Cost of Rent

When considering the cost of rent for retail space, there are a few things to keep in mind. First, base rent is not your only rental cost. In addition to base rent, you will also be required to pay your share of operating expenses (aka NNN)

Second, the size and location of the space will affect the price. Nicer, more visible locations will have higher base rental rates. Lastly, the length of the lease can impact the monthly rent payments. As you can see, there are a lot of factors to consider when it comes to the cost of rent for retail space. Be sure to do your research and work with a reputable retail leasing company to ensure you get the best deal on your next retail space lease!

The Cost of Utilities

Another cost that will not be included within your base rental rate is your utility expenses.

These costs cover:

• Lighting
• Electrical
• Heating, air, and ventilation
• Water
• And any trade specific utilities that you may require

These “other” costs can vary from additional display lighting for a boutique retail store to power intensive kitchen needs for a bustling restaurant. While utilities can be estimated, it is important to take into account what your specific needs are rather than rely on general information.

Even if a previous tenant is able to share the cost of their utility bill, their uses may not align with your concept and thus provide you with a skewed estimate of your utility expense.

Operating Expenses (NNN)

Most retail buildings are Triple net (NNN) leases. Meaning in addition to base rent tenants will also be responsible for their share of the operating expenses which are the property taxes, building insurance, and common area maintenance (CAM). These costs are passed along to tenants. While it is not likely you will ever avoid having to pay NNN you can sometimes negotiate to have a cap on the landlord’s controllable expenses.

Property Taxes

As with all properties, your new or prospective landlord is required to pay taxes on the retail space you are considering leasing. If you have agreed to a NNN lease structure, that means this expense will be passed onto you as the tenant.

Typically, since the tax rate is not controlled by your landlord, taxes will be a non-negotiable expense.

Building Insurance

This is different to the general liability and property insurance that you will have to have. Building insurance offers financial protection against property damage for landlords who rent buildings to commercial tenants. It can help cover costs from a fire, storm, or other incidents that damage or destroy your building.

If a fire damages your building, building insurance can cover the cost of renovations to the walls, floors, ceilings, and any permanently installed fixtures or equipment. The same is true for water damage from a burst pipe, or windows broken by a storm.

However, building insurance does not cover office equipment or other moveable property, which is why you might also want the protection for your business personal property afforded by standard property insurance.

Common Area Maintenance

Common area maintenance is one of the three main components that make up operating expenses, the other two being insurance and property taxes. This, in turn, makes CAM part of what is called a Triple Net (NNN) Lease.

Common Area Maintenance (CAM) expenses are fees paid by tenants to landlords to help cover costs associated with overhead and operating expenses for common areas. Common areas are spaces used for or benefited from by all tenants and include, but are not limited to, hallways, elevators, parking lots, lobbies, public bathrooms, and building security.

CAM expenses are usually defined in the lease to clear up any ambiguity as to what they entail. It is important to have a clear understanding of these expenses before signing a new lease.

Tenant Improvements

Tenant improvement, leasehold improvement, and build-out are different ways of saying the same thing in the commercial real estate business. While the words may be different, the meaning is not. All three terms mean work is being done to an office or a building to prepare it for a new tenant.

Leasehold improvements, otherwise known as tenant improvements or build-outs, are structural changes made to a leased space to make it suitable for a new tenant.

Examples of these improvements include:

• Repainting
• New carpet
• Lighting configurations
• HVAC updates
• Plumbing upgrades
• Electrical work
• Full renovation

These improvements sometimes are done by a contractor that the tenant hires, or the landlord might agree to oversee the work on a turnkey basis. In other cases, both the tenant and landlord might share responsibility for a build-out.

General Liability and Property Insurance

General liability and property Insurance is important for any business, and it is also a landlord requirement if you want to lease retail space. The lease contracts will typically outline the insurance requirements required by the landlord. The cost of insurance will depend on factors such as the type of business you have, the value of your property, the coverage you choose and the location of your business.

Furniture, Fixtures, and Equipment (FF&E)

In commercial real estate, FF&E stands for furniture, fixtures, and equipment. You might also see the word “accessories” in the place of “equipment,” and the acronym instead becomes FF&A. These types of assets include movable furniture and electronic equipment.

As tangible assets, FF&E items cannot have a permanent connection to the building in any way. For example, faucets and lighting fixtures are not FF&E since they are part of the structure of a building itself. In contrast, office furniture like couches, desks, sofas, shelving, and bookcases are examples of FF&E.

Including the total costs of these FF&E items on your business’s balance sheet can lead to tax breaks and deductions. They also are key factors in determining a company’s accurate valuation—the sale price of an entire business.

Marketing and Advertising

Running a property also requires marketing and advertising costs. These costs occur when owners promote their property for rent or sale. Usually, these costs are crucial in generating income. If landlords do not market their property, they may not find suitable buyers or tenants. Marketing and advertising expenses are deductible items from revenues under operating expenses.

In order to attract customers to your new business, you will need to invest in some marketing and advertising. This can include online ads, print ads, flyers, and more. The cost of marketing and advertising will vary depending on the methods you choose to use.

How to Negotiate the Best Lease Terms

When it comes to leasing retail space, keep in mind that you are entering into a long-term contract. As such, it is important to make sure that you are getting the best possible terms for your lease.

Here are a few tips on how to negotiate the best lease terms:

1. Know what you want: Before entering into negotiations, it is important to know exactly what you want out of your lease. This will include such things as the type of space you need, how long you need the lease for, as well as your budget. Once you have a clear idea of your needs, you can begin negotiating with landlords from a position of strength.
2. Do your research: It is also important to consider different retail spaces before settling on one. This way, you will have a good idea of what is available and at what price point. This information will be crucial during negotiations.
3. Be prepared to walk away: If the landlord is not willing to meet your needs, do not be afraid to walk away from the deal. There are always other retail spaces available, and signing a bad lease because you are desperate for space will not be in your best interest.
4. Get everything in writing: Once you have reached an agreement with the landlord, make sure that all of the terms and conditions are clearly written out in the lease agreement.

Why Choose IPA Commercial Real Estate?

Choosing the right commercial property management company can make real estate ownership a breeze. For people who own commercial and industrial properties, working with a respected property management company can be a great resource. With 30+ years of experience in the Inland Empire, the experience of the IPA Commercial Real Estate team provides a depth of knowledge regarding maintenance and project costs.

Just like management in any other business, a respected management company can monitor the care and financial requirements of any property. We can also help evaluate your rent structure. IPA Commercial Real Estate very focused on client properties and tenants and we have the skills and knowledge to make your ownership experience easy and pain-free.

We offer 24/7 Service from our team day or night! Call IPA COMMERCIAL REAL ESTATE at (951) 686-1462 to discuss how we can help you. Let us show you how to add value to your property.