Before the pandemic, the big worry for the coworking industry was that it hadn’t been through all the economic cycles.
Then COVID-19 appeared on the scene.
Suddenly, the focus shifted to what we needed to do to handle this unprecedented global challenge.
Now, as we enter the “pandemic light” stage–where it’s still on our minds, but it’s not everyone’s top concern anymore–we’ve reverted to the question of whether or not flexible office space is a good thing during an inflationary and recessionary period.
It looks like we’re about to find out.
When is Flexibility Ever Bad for Business Owners?
Fundamentally, when you’re debating the viability of the coworking industry during any given economic cycle, the biggest question is this:
How is flexibility ever a bad thing?
Say, for the sake of argument, that you’re a business owner, we’re entering a recession, and your office lease is almost up.
When you remove the pandemic from the equation, is your business recession-proof? Does it thrive in a recession? Or is it recession-neural?
And, on the other hand, how long of a recession are we facing? How deep will it be? How far-reaching will it go?
Your specific situation, in conjunction with the current circumstances, will dictate whether you want to sign a long-term lease.
But here’s the key consideration: as an employer, your number one liability is rent–even more so than payroll.
So, if you have any uncertainty whatsoever, you’ll need to determine your comfort zone in dealing with it when deciding on your leasing options.
And, for most business owners, when faced with uncertainty, flexibility is going to be substantially more appealing than inflexibility.
It’s common sense.
Landlords Need to Play the Numbers Game
As a landlord, you need to consider the numbers. It’s the only logical way to approach your decision about whether flexible office space is right for you.
Think of it this way…
Imagine you have 100,000 square feet of space and 80,000 of them are occupied by a single credit-worthy tenant.
Is that too risky in the face of a looming recession?
If you ask me, I’d say it is–and I’ve been on both sides of this equation.
Why?
Because if that single tenant doesn’t renew their lease–or, worse yet, defaults on it–you’ll be stuck asking yourself some pretty ugly questions.
What do you do now that they’re gone?
How long is your space going dark for?
How long does it take to lease your space again?
How much is it going to cost to get the space ready to put back on the market?
What kind of concessions are you going to have to give to get a deal done?
And can you handle all of that?
The old adage, “too much of anything is a bad thing,” also applies to office real estate: too much of a single tenant is no good at all.
Because nothing lasts forever–especially in the face of uncertainty.
The Few Times Where Flexibility Isn’t the Answer
When I give this opinion, I’m talking in generalities.
Admittedly, there are some scenarios where flexible office space isn’t the right answer. I know as well as you do that there are a million and one ways to make money in real estate.
For example, if you’re into a short-term hold where you plan to acquire an asset, come in as a value-add, make a few improvements, and flip the building, flexibility may not be for you.
In that case, flexibility admittedly makes the transfer of ownership more complex because it involves a degree of educating the new owner and selling them on the concept.
But that’s a different approach to real estate than most landlords.
When I talk about the people who benefit most from flexible office space in their portfolios, I’m talking to those involved with longer holds–like generational real estate firms rather than private equity financiers that come in to drive occupancy up from 40% to 60% and get out of there.
How Flexibility Makes Your Building Recession-Safe
Unlike the hypothetical scenario I mentioned earlier where your space is 80% occupied by a single tenant, flexibility gives you options.
If that tenant hits hard times and has to lay off the majority of their staff, a lack of flexibility means you lose them entirely.
But, on the other hand, if you have flexible space you can offer to them to accommodate their reduced team, you can theoretically keep them in the building until their business levels out, and they can grow into a larger space again.
Your building doesn’t need to be overwhelmingly flexible. In fact, it shouldn’t be. But how much safer would you feel if you had options to offer your tenants during uncertain and challenging times?
People will need flexibility eventually. And when they do, they’ll find it.
The question becomes this: will you be able to give it to them or will you show them the door?
There are a ton of ways flexibility helps a company in a recession and offering it means you can support them as they weather that storm.
That kind of relationship between a landlord and tenant is what people remember–and it’s what keeps them with you for the long run.
If you want to learn more about how flexibility can make your building recession-safe, get in touch with me today. I’d be happy to talk you through the benefits it can offer you.
