Changing Face of Commercial Real Estate – Flexibility
The old model of long term ‘handcuffed’ leases with fixed footprints and extraordinary provisions to pass through any types of imagined expenses that might occur – or actually never will – is not the buyer market in 2018. Lessees want simplicity and flexibility. Even WeWork – known for flex office space, but mostly for co-working individuals, is now leasing space with large office footprints in major markets.
Below from Nov. 1 Boston Globe article included at this link: https://www.bostonglobe.com/business/2018/11/01/wework-lands-another-big-tenant/S7lWOxF3cUxHS2ELPwTxGO/story.html?et_rid=650615656&s_campaign=todaysheadlines:newsletter -
"WeWork offered a five-year lease for all four floors of its new building at 40 Water St. — part of cluster of buildings that Related Beal is redeveloping. Mallett said WeWork would charge “a very reasonable breakup fee” should ezCater leave before the lease ends. The basic rent is higher than for a traditional office landlord, Mallett acknowledged, but after factoring in utilities, furniture, security, and other services — most of which WeWork provides — the total cost is comparable."
While real estate owners want to ensure occupancy for the longest and most finite period of time at current market rates, minimize risk by passing through every imaginable future expense that might occur in addition to actual operating expenses which will be charged anyway, and therefore ensure making a large profit – it is not what buyers are looking for in 2018. It is now a fast paced business climate where companies like ezCater – as evidenced in the article above – really don’t know where they will be in even a few years - let alone 10 or 15. There needs to be flexibility for companies to expand or contract on demand and simplicity in dealing with expenses to not expose hidden charges or wild rate swings due to a landlord’s whims or errors.
Experts initially said that WeWork could not succeed in flex office space for individuals needing co-working space under flexible terms without exorbitant expenses, and not only were those experts wrong at the individual person level, they were wrong regarding larger footprints and even with large companies. Now, the real estate market looks to WeWork as a leader and visionary blazing a trail for other owners.
CIWorks is doing for manufacturing space what WeWork has done for office space. Remember: ‘Keep it flexible and simple, Stupid!’