The Great Resignation Of Office Tenants Begins, As Occupiers Quit Leases And Move To Flex Space

According to JLL, flex space will be 30 percent of the office market by 2030. One of the key reasons for this is that unlike office suites of the past, which existed primarily to provide desks, flex space companies today are being used as one component of a client’s overall strategy.

John Arenas, CEO of flex space provider Serendipity Labs, explains how his company enables the overall business strategy of optimizing real estate commitments for clients, including major enterprise firms.

“Large companies now view flexible office as an extension of their real estate, because the product can meet corporate workplace compliance standards, settings and work styles,” Arenas said.

Another advantage of flex space for companies is that it turns a fixed cost into optional cost, leading to potentially significant cost savings when plans change.

“Flex space can help vary the occupancy cost for a larger and larger portion of their total population of employees,” Arenas said. “If a company had a total occupancy annual cost of $15,000 per employee, flexible office can help them reduce that cost because it’s not one desk for one person. You only pay for what you use. So it enables their real estate strategy, reducing the load on central corporate headquarters space.”

Part of why “only pay for what you use” becomes so valuable is the sheer unpredictability of a company’s long-term staffing requirements.

When a company signs a long-term lease for office space, changing corporate priorities and strategies over time, combined with equally unpredictable factors in the economy and society at large — like a global pandemic — make it impossible to accurately determine their space needs for even the next two years, much less five or 10. Therefore, matching the space they take with just the space they need becomes an impossibility.

Flex space solves this problem.

“When a company signs a 10-year lease, they will either not be using all of it, or will need more than they have during the lease term. So they will be incorrect for the majority of the time they are under that lease about how much space they really need,” said Arenas. “If you’re underusing it, then you’re paying for things you don’t need, and your cost per employee goes up. If you need more, that’s impacting your core business. So there’s an actual cost of being wrong, which occurs most of the time you’re in a 10-year lease, especially in regional offices.”

Flex space offerings from companies like Serendipity Labs also help buffer for uncertainty in an unsure business climate on the customer side, allowing companies to match their office commitments with their actual business opportunities.

“We enable companies to match a revenue opportunity they have in a new market with their lease obligation. This is possibly the first time that this has happened in the history of office space, so it’s really exciting to them,” Arenas said. “As a company looks to grow and puts a sales team in a new market, or meets a customer requirement for that market, they no longer have to sign a five- or 10-year lease, which is good because their customer contract may only be one to three years at most, not 10 years.”

The office equation has become even more complex for companies during the pandemic given the attraction of the hub-and-spoke, or core-and-flex, office model, where companies open smaller outposts in suburban locations close to where their employees live in addition to maintaining their traditional headquarters.

Here again, flex space is a key ingredient in keeping costs reasonable and appropriate throughout the endeavor.

“If you sign a traditional lease in a remote market, or a suburb, for a hub-and-spoke approach, you have significant capital costs and commitments to do that,” Arenas said. “You’re paying for part of the tenant improvement above your allowance, and you’re using your internal team and consultants and vendors to design and support the space in a way that’s not super efficient. If you’re supporting 10 floors of a headquarters, you have everybody you need at the headquarters to support it, such as the tech and operations team. It’s really inefficient for a company to try and extend the real estate platform for a remote office. There are no economies of scale for that. If you use a provider like us, we have economies of scale for supporting multiple locations.”

AI consultancy NeuraFlash has been using Serendipity Labs’ flex space as a hub-and-spoke solution, and they see numerous advantages to taking this approach instead of trying to develop this solution on their own.

“During the pandemic, NeuraFlash began looking for an office solution in the suburbs to get our employees out of their houses, but still close to home,” said Tom Hebner, vice president of product and insights at NeuraFlash. “Serendipity Labs Ridgewood had everything we needed, including great restaurants and amenities in the neighborhood.”

NeuraFlash has found the Serendipity Labs location incredibly useful, while also enjoying such a significant cost savings that their vision for the future of their operation has changed.

“Four of us use it every day. I walk to work, and our New York City employees can easily get here for meetings because it’s right across the street from the train,” Hebner said. “We are a growing company with teams across the country. Flexible offices allow us to be agile and match our lease commitments with where our staff are. I don’t see us going back to long-term leases.”

At a time when office life is rife with uncertainty and many are still reticent about returning to the office—all of Serendipity Labs’ offices feature high-efficiency filters with high air turnover. Flex office space from firms like Serendipity Labs is a healthy, cost-saving solution for companies of any size.

“We’re providing flexibility during uncertainty. That’s a fundamental value we provide,” Arenas said. “We’re providing a safe, trusted, inspiring place to attract people back to working together. That is something that’s hard to do.”

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