You may have heard of the term “flex” used before to describe a commercial real estate property, but do not know what it means or why it seems so popular among investors. This includes terms such as “flex warehouse,” which has only in recent years begun to gain popularity. Traditional office space such as these went under different names, such as “public warehousing” or “multi-client space” but all referred to a flexible industrial property.
Flex properties give business owners and companies everything they need and the room to grow, customize, and expand their space however they see fit. This rise in popularity among businesses has provided opportunities for investors looking to get into commercial real estate investment, whether new or more experienced in the industry.
Flex space, short for “flexible space,” is a form of commercial real estate that gives companies office, retail, and warehouse space. These buildings can be stand-alone or located in dense, industrial parks. They are often one story but may be more. Units have a warehouse door or loading dock with a higher ceiling height, too, typically around 14-16 feet tall. Flex warehouses come in a variety of shapes and sizes, which only enhances their existing versatility in use. Typical layouts for a tenant include an office space up front with the storage or warehouse space in the back.
The versatility of these spaces attracts a wide variety of businesses across industries, including construction, manufacturing, e-commerce, medical and logistical distribution.
This ability to have a space for offices, warehouses, and manufacturing under one roof is just one reason why these properties are so popular. During the pandemic, conditions prompted more consumers to purchase their goods online, which resulted in businesses changing their strategy from in-store shopping to warehouse distribution points. Increased demand has also made them a popular choice among real estate investors.
For any businesses just getting started, these spaces are a great option because they provide the necessary office space as well as useful warehouse or manufacturing floor space. This layout allows employees to communicate face to face when needed and allows them to move between working on the manufacturing floor and the office, when they need the use of a computer. As an example, a design company could use the building for design offices and then house construction materials in the warehouse below.
One of the other appealing aspects of flex space can be its customizability. For example, if a tenant or tenants want to increase their office space or warehouse space, they can easily do that with this type of industrial property. Typically, improvement costs are reduced compared to office properties.
Traditionally, Class A or B office buildings have improvement costs that are higher than those found in flex spaces. For example, a Class A office building could have improvement costs ranging from $20 – $40 per square foot, while the flexible industrial space has a range of $5-$20 per square foot.
This ability for customization extends to its tenants, too. Unlike multi-tenant office buildings that usually only cater to companies such as law firms or insurance companies, flexible assets can accommodate tenants that can range from construction companies and manufacturing companies to retail-style restaurants. Customizable buildouts allow for a strong mix of businesses in each industrial park that a normal office building would not be able to accommodate. This means landlords are mitigating the potential risk involved with changing real estate markets or demand. Their tenants are diversified between national and local companies and across industries.
Perhaps one of the strongest benefits of flex industrial assets is the way most landlords are able to structure their leases. With these properties, most tenants typically fall under a triple net lease structure. In this lease structure, the landlord passes three key expenses onto the tenant: taxes, insurance, and common area maintenance (CAM).
The first two are self-explanatory. They include property, or real estate, taxes and any insurance needed to protect the asset from theft, nature, or other potential disasters. CAM, on the other hand, describes any expenditures related to utilities and general maintenance such as landscaping, cleaning, or even parking lot expenses.
Multi-tenant office buildings often have the landlord paying for those expenditures mentioned above, which can cut into any potential returns. The assets give the owner or investor, the unique opportunity to avoid these costs. Instead, they only have to worry about paying large capital expenditures.
Not to be overlooked, shared flex industrial spaces can lead to multiple businesses being housed within the same property. Shared common areas allow both management and employees to interact with staff from other businesses, too. This may encourage further interaction, business deals, and generate greater productivity or attract further clientele.
Whether a new or experienced investor, flexible assets are a great commercial real estate investment. Their versatility allows both tenants and their landlords to enjoy lower costs and full customizability. They also benefit investors by shifting some of the financial responsibility onto the tenants, which may increase potential returns.
At Avistone, flex industrial spaces are part of our firm’s portfolio. We seek to deliver yield, inflation protection and long-term capital appreciation to our clients by investing in these multi-tenant industrial properties. Our team of dedicated real estate investment experts work hard each day to improve and increase the operating efficiencies of each property. We invest alongside our investors and take a hands-on, team approach to ensure each investment we make provides maximum yield to all of our stakeholders.
If you are an accredited investor looking for opportunities in industrial properties, contact us!
*Important Disclosures:
This communication is intended solely for accredited investors as such is defined in the Securities Act, and is not intended as an offer to sell, or the solicitation of an offer to buy any securities or ownership interests. The opinions and forecasts expressed herein are solely those of Avistone, LLC, as of February 24, 2023, and subject to change. Actual results, future events, predictions, circumstances and events will vary and be different from those set forth herein, and there are no guarantees that any positive or successful results, express or implied, by investors will be realized. Avistone specifically disclaims any right or obligation to provide investor returns at forecasted levels. Avistone’s track record from 2013 to December 2022; no guarantee of future results. The performance information of Avistone’s prior projects has not been audited by any third-party. The track record metrics reflect the weighted average performance of all our clients, and not every investor experienced exactly these same returns. Any and all evaluations for investment purposes must be considered in conjunction with a final Private Placement Memorandum (the “PPM”); all prospective investors are strongly encouraged to read all “risk factors” in the PPM. Further, some of the initial information provided above contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties, and investors should not rely on them as predictions of future events. Investments in private securities contain a high degree of risk and often have long hold periods. They are illiquid and may result in the loss of principle. Avistone’s strategy may not occur due to numerous external influences.