A flex space (or flexible property), either as a standalone building or a part of a larger industrial park, blends office and industrial functions such as warehouse, manufacturing, even R&D under one roof. Since the 2020 pandemic, flex space as a CRE (“commercial real estate”) asset class has been gaining traction, especially among investors and tech company tenants.
Typically, a flex space has an office space in the front, and a warehouse or storage space in the back. This layout is convenient, efficient, and less costly for fast growing tech companies in Silicon Valley and Fremont, as well as manufacturing, e-commerce, supply chain logistics, distribution centers, retail, construction, and auto shops.
The last decade of growth in e-commerce and the need for efficient supply chain networks give rise to an increasing demand for flex space. Another reason for flex space popularity is that it can be modified to accommodate changing needs for storage, R&D, manufacturing, and distribution. Flex space is a flexible and adaptable option for businesses that need office / retail and warehouse.
From a rental perspective, flex space is typically less expensive on a price per square foot basis than traditional office space. Additionally, flex space has more options for the design layout than a regular office.
Since flex space has a smaller warehouse than a traditional warehouse, it can be built at a prime location (where land is scarce and expensive) with easy access to transportation and a wide customer base. More businesses are leasing flex space due to adaptability, convenience, and affordability.
The high demand for flex space has driven rental rates up, with annual increases ranging from 3 to 10 percent in Silicon Valley and Fremont. Flex spaces are easier to lease without needing much renovation or major tenant improvement buildout. Their versatility appeals to a wide range of users, making it a lucrative investment for commercial real estate investors.
Flex space attracts companies looking for shorter lease terms than traditional office buildings. These businesses encompass small logistic companies, tech startups, services, co-working offices and hybrid workforces, etc.
The following is a non-exhaustive list of the types of businesses that may lease flex spaces:
Distribution and Logistics Companies, as well as third-party logistics providers (3PLs), rely on flex space industrial properties for receiving, sorting, storing, managing, packaging, and shipping goods across various supply chains for multiple clients. Additionally, e-commerce fulfillment centers may need logistics infrastructure to conduct online retailing, including storing inventory, managing orders, and delivery.
Advanced Manufacturing: The advanced manufacturing at a flex space is often small-scale for prototyping high tech products, and custom-made or artisanal products. Advanced manufacturers may also use flex space for training, and to demonstrate and showcase products.
Research and Development (R&D) Facilities: High tech companies in robotics, pharmaceuticals, and biotech often need R&D labs within flex spaces for experiments, prototype development and testing, and collaborative areas for teams. The R&D part of a tech flex space often needs specialized power supply, equipment, filtration, and sometimes controlled environments such as cleanrooms.
Food and Beverage Production: Food manufacturers, craft breweries, caterers, and other businesses in the food and beverage industry need flex space with commercial-grade kitchens infrastructure, temperature-controlled environment, commercial-grade refrigeration, storage, and facilities for efficient food and beverage production.
Co-working and Creative Workspaces: Coworking offices, conference rooms, and socializing spaces can be created at a flex space. Designers and artists often require natural light and specialized storage as studios / workspaces, as well as common areas for collaboration and exhibitions.
Auto Repair and Body Shops: To repair, maintain, and service vehicles, the flex spaces need to have ample clear height, power supply, and accommodations for lifts, machines, tools, paint booths, etc., for performing auto mechanical work or body work.
Gyms and Fitness Centers: Flex spaces’ large open areas can be used or modified according to spatial requirements and accessibility needs to install exercise equipment, conduct workout classes, and provide showers and changing rooms.
Strong rental demand: Flex space industrial properties usually command higher rents due to the growth of e-commerce and supply chain, generating high ROI for investors.
Potential for Long-term Stability: Even during economic downturns, the demand for flex spaces remains stable, making investment in flex space industrial properties one of the more reliable and secure long-term options for investors.
Lending Leverage: Because of the increasing demand and long term stability of flex space, investors can use borrowed funds (debt) to finance investments with the expectation that the return on the investment will exceed the cost of borrowing.
Diversification of Investment Portfolio: As a distinct asset class, flex space diversifies investment portfolios and hedges against downturns in other sectors.
Triple net (NNN) leases: As with most industrial and commercial real estate investment, the financial burden of investors / landlords can be alleviated with triple net (NNN) leases where tenants, in addition to the base rent, pay for property taxes, building insurance, and common area maintenance (except major repairs, which are considered capital improvements that are typically paid by property owners).
Buying or leasing flex space requires careful weighing of benefits, costs, risks, investment goals, market conditions, and many factors unique to each investor or tenant. The following is a partial checklist to consider, as written by other experts in this and other articles:
When you need to sell, buy, or lease a flex space, the Ivy Group is ready to help you reach your goals with more than 100 years of combined experience and expertise in real estate, investment, technology and engineering. Contact us with your next real estate needs.
Copyright ©️ 2025 by Tim Vi Tran, SIOR, CCIM. All rights reserved.
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