Who Is Using Flexible Office Space?

The demand for flexible office space is growing rapidly and from an amalgam of users. In addition to start-ups and tech companies, which have traditionally dominated the office niche, corporate users are also fueling growth in the market. Where there is demand, supply will follow. As a result of the healthy demand, new flexible landlords are entering the market, from large office owners, who are beginning to rent unused smaller portions of the space and tenants with sublease space available. To find out how the flexible lease market is evolving and who these new users are, we sat down with Mark Gilbreath, CEO and founder of LiquidSpace, for an exclusive interview.

GlobeSt.com: How has the market for flexible space evolved?

Gilbreath: The real estate response to this growing demand for flexible office is quite interesting. We see three categories emerging from the real estate standpoint and are now apart of the overall office landscape. There is co-working spaces and serviced office, and that industry has been around for 20-plus years. It continues to scale, and it is growing. There are also two newer categories of properties that are increasingly becoming a part of the flexible office solution set for corporations. One of those is that private companies that are increasingly sharing their space with other companies that want flexibility, and peer-to-peer sharing of space has become a substantial portion of our space network. The third category is the activity of large landlords that are now recognizing that flexible office demand is ramping, and their opportunity to serve that demand can be more than leasing a floor to a co-working operator, which is what they had done in the past.

GlobeSt.com: Landlords are becoming flexible office operators?

Gilbreath: Large owners are getting in to the game directly. They are creating spec suites; they are providing flexible transactions are shorter terms. Owners, who in the past would only do long-term leases, are now becoming direct participants in flexible deals.

GlobeSt.com: What is driving landlords to get into this business?

Gilbreath: What they see from an opportunity standpoint is a couple of things. They see the means where they can actually drive lease up for a portion of the portfolio that had been chronically vacant as a result of traditional leasing methods. In traditional leasing, you may rent three-quarters of a floor plate to a tenant for 10 years. The remaining quarter floor plate often can be harder to fill. Similarly, with traditional leasing, owners may take encumbrances, where a tenant has an option to lease an adjacent space in the building at some point in the future. In the intervening timeframe, that space cannot be leased in a traditional sense. So, owners are using flexible office transactions as a means of infilling to drive the tenancy in the building and increase its economic occupancy. Additionally, owners are realizing that many high growth tenants might prefer flexible commitments, and they are nurturing what might evolve into a long-term tenant in the future.

GlobeSt.com: There is clearly a lot of demand for flexible space. Who are the users?

Gilbreath: At an early stage, the business is fragile and you are looking for employees and customers. That company is going to put itself in a very high opportunity environment, and that is most likely a co-working space. That comes with networking opportunities with potential employees, investors, partners and customers. A 10- to 20-person organization that is focused on scaling its business, the focus tends to shift toward strengthening the company culture and the team's inner cohesiveness. At that stage of a growing firm, the value of being in a porous co-working environment decreases. Most corporate clients think the same way. They want great design, forward thinking collaborative environments, but we may not want employees to bump into other entrepreneurs because that could become a distraction.

The demand for flexible office space is growing rapidly and from an amalgam of users. In addition to start-ups and tech companies, which have traditionally dominated the office niche, corporate users are also fueling growth in the market. Where there is demand, supply will follow. As a result of the healthy demand, new flexible landlords are entering the market, from large office owners, who are beginning to rent unused smaller portions of the space and tenants with sublease space available. To find out how the flexible lease market is evolving and who these new users are, we sat down with Mark Gilbreath, CEO and founder of LiquidSpace, for an exclusive interview.

GlobeSt.com: How has the market for flexible space evolved?

Gilbreath: The real estate response to this growing demand for flexible office is quite interesting. We see three categories emerging from the real estate standpoint and are now apart of the overall office landscape. There is co-working spaces and serviced office, and that industry has been around for 20-plus years. It continues to scale, and it is growing. There are also two newer categories of properties that are increasingly becoming a part of the flexible office solution set for corporations. One of those is that private companies that are increasingly sharing their space with other companies that want flexibility, and peer-to-peer sharing of space has become a substantial portion of our space network. The third category is the activity of large landlords that are now recognizing that flexible office demand is ramping, and their opportunity to serve that demand can be more than leasing a floor to a co-working operator, which is what they had done in the past.

GlobeSt.com: Landlords are becoming flexible office operators?

Gilbreath: Large owners are getting in to the game directly. They are creating spec suites; they are providing flexible transactions are shorter terms. Owners, who in the past would only do long-term leases, are now becoming direct participants in flexible deals.

GlobeSt.com: What is driving landlords to get into this business?

Gilbreath: What they see from an opportunity standpoint is a couple of things. They see the means where they can actually drive lease up for a portion of the portfolio that had been chronically vacant as a result of traditional leasing methods. In traditional leasing, you may rent three-quarters of a floor plate to a tenant for 10 years. The remaining quarter floor plate often can be harder to fill. Similarly, with traditional leasing, owners may take encumbrances, where a tenant has an option to lease an adjacent space in the building at some point in the future. In the intervening timeframe, that space cannot be leased in a traditional sense. So, owners are using flexible office transactions as a means of infilling to drive the tenancy in the building and increase its economic occupancy. Additionally, owners are realizing that many high growth tenants might prefer flexible commitments, and they are nurturing what might evolve into a long-term tenant in the future.

GlobeSt.com: There is clearly a lot of demand for flexible space. Who are the users?

Gilbreath: At an early stage, the business is fragile and you are looking for employees and customers. That company is going to put itself in a very high opportunity environment, and that is most likely a co-working space. That comes with networking opportunities with potential employees, investors, partners and customers. A 10- to 20-person organization that is focused on scaling its business, the focus tends to shift toward strengthening the company culture and the team's inner cohesiveness. At that stage of a growing firm, the value of being in a porous co-working environment decreases. Most corporate clients think the same way. They want great design, forward thinking collaborative environments, but we may not want employees to bump into other entrepreneurs because that could become a distraction.