As a professional coworking and flex office operations, who would you want in your corner as an advisor?
Probably someone with experience as a landlord. Preferably a person who pays close attention to the market and can speak with fluency about trends. And ideally an expert who understands retail, hospitality, and the needs of a city.
Oh wait, that’s Michael Abrams.
Abrams is an economist by trade who went to urban planning school. He’s been in retail and real estate development. And yes, he’s been a landlord, too.
Today, Abrams is part of Flexspace Advisors.
“I’m not a broker,” he clarified. “I’m not motivated by a fee. I’m motivated by keeping my clients happy. It’s about tailoring the process that best suits my clients, all of whom are different and have different needs and strengths. And we learn from each other.”
Give us your hot take on enterprise and flex.
“Let’s start with independent operators who want to welcome enterprise clients. It can be very tempting to fill your space with a handful of large groups. But there are two very big downsides.
Enterprise groups are often too big, too corporate, too sterile, and too generic for independent coworking spaces. And they don’t mesh with the community. Fit matters. But at the same time, these enterprise groups often don’t want what makes these independent spaces so special.
They want to be by themselves. They might want to even have their own door! But not just culturally, economically these groups are risky for smaller operators. They leave a huge gaping hole when they terminate their membership, as opposed to a membership made up of a larger number of small teams and solo practitioners.
I visit spaces all the time, wherever I go. And I’ll go to the ‘big boy’ spaces, which are around 40,000 square feet. Honestly, these operators just don’t create a welcoming place. You don’t get the sense of community.
I’ve met so many great operators and community managers at the independent spaces. Because what helps a good space get to great is the engagement. A great community manager will find a way to get members to engage and really figure out who you are, what you want, and what services are needed. It’s empathy and emotional intelligence, combined with a concierge style of service.
Sure WeWork makes it challenging for operators because they discount so heavily, but they aren’t an independent space’s competitor. When you do hospitality right and you deliver space as a service, you compete on energy, not just amenities.”
First, the pandemic. Now a market correction. What should operators be thinking about as they head into 2023?
“In general, this recession could be worse than the pandemic. We’re already starting to see companies let people go in order to protect their bottom line.
There is a silver lining for flex. I think this will be a time for flex to shine because of the uncertainty. Many companies tried to force people back into the office, but that isn’t working. Leaders need to understand the cost and benefits of employees actually going into the office. What does the office mean and what’s the purpose? A general mandate isn’t working.
Just because gas prices went down doesn’t mean everything else will be great. It’s not the price of gas, it's the price of time that matters to people. That’s where flex works best.
And this isn’t necessarily in the big urban areas, but definitely in secondary and tertiary markets — smaller areas that didn’t overbuild from 2017 to 2019. And better yet, the larger flex space companies aren’t in those markets yet. That’s where the action is for independents.
Flex works best when it works for the members. And that’s informed by data such as space utilization — understanding when people need or want to be in the office.
On any given day, only 55% of your office is being used. But when they want to reduce overhead, companies let people go. Why not change the thought pattern? Reduce your real estate overhead and your liability so you can keep your people.”
Let’s speak of leases and landlords. What do you see there?
“Landlords have an old school mentality. They don’t think outside the box. They’re used to a hands-off experience with very little communication.
When we work with our clients on pitch decks, we focus on past success. If you sign a lease and you’re making a profit, more than likely that means you are over achieving and out-performing market rents. So when you create a pitch deck, you have to show that. For many of our clients, we get deals because we help them demonstrate their wins.
But so many indie operators keep their results close to the vest. They’re extremely dedicated to their community and are happy to showcase their culture, but not really thinking about creative leasing and management solutions. It’s one thing to put up projections for a landlord. It’s another to show proof to build confidence and solidify trust.
I work side by side with operators and teach them about size, scale, and monetization. We make sure to identify the income source and create those ratios.
The majority of your income (60 - 65%) will be from private offices. But if you haven’t maximized your rentable square feet, you’re not going to make it. Our job is to remind operators how the business model works. And entrepreneurs, more than anyone, create social networks. They integrate their community and connect their members. Add in conferences, virtual mail, events. And they can take it further to welcome incubator groups, startup events.
The fact is, every lease has its flaws, but also has its opportunities. The lease can be good and bad.
I see this as a period of great opportunity for the flex industry. There is so much vacant space. There are some sublet places that you can get for 50% off market rates. I don’t know if we’ll see an opportunity like this again.
For operators, it’s time to get out there. It is a game, yes. You have to be able to play the game.”
Note: you can even become the headquarters for university programs!
What inspires you about the independent flex office operator today?
“One thing I learned during the pandemic is that entrepreneurs don’t give up. They maintain their obligations — even when things are in the red. Whereas, who went belly up? Knotel. Breather. MakeOffices. Meanwhile, Industrious, WeWork, and Convene all walked away from leases. But the independents did their best to stick it out. Not always for the best.
The other note I have is that not every flex operator is competition. Everybody has their own niche, and they all do something different. And when it comes to flex, the more, the better! The market wants it.
Look at the US General Services Association. That body awarded five companies a contract for coworking for federal employees. At a recent Department of Labor seminar regarding the future of work for the federal government, it is clear that federal agencies are moving closer to embracing flex — it’s an idea that’s clearly gaining traction every day.”
What do landlords and CRE professionals need to know about flex?
“I work with landlords and every now and then I get to see an aha moment when I tell them about flex. On demand office space is the best thing right now. You don’t have to wait for a broker to fill your space.
Do you know how much a landlord would have to give away to compete for a 10,000 square foot deal? That prospective tenant will ask for the moon! No one wants to sign a 10 year lease right now, because we don't know what will happen in a year, much less a decade.
So do you want to increase your margins? Create flex space! It makes so much sense.
You want to reactivate a building? Get tenants in there.
And the old school methods aren’t necessary anymore. Landlords don’t actually need brokers to fill the space, and innovative landlords know how to do it. They know how to leverage social media and Google. It’s hard to break old habits. But this coming market correction might force them.
Landlords can reduce their capital spending with flex because it eliminates the need for those demising walls separating tenants. In fact, flex brings everyone together — rather than duplicating the same improvements for every tenant in the building, flex centralizes the common features which reduces costs and increases operating efficiencies.
It’s so appealing to members and the value is greater to landlords. But landlords and occupiers are stuck in the old ways.
Opportunities like this don’t come around that often. This is the sea change for flex, as traditional leasing is not working anymore.
The best part of working with indie operators is that they see the vision. But growth is hard — you need capital. And many operators don’t have that background or knowledge to raise capital. And that’s where we can come in. Nobody will hand you a million dollars, you need to go out and shop it around, and craft a powerful position. We can help.”
To learn more about Flexspace Advisors, schedule a complimentary consultation.