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Everything you need to know about flexible leasing 

By April 20, 2022No Comments

When the pandemic broke out in 2020, it slammed the brakes on many old-school business practices, including the traditional ways of leasing commercial real estate (CRE).  

Since then, the term on everyone’s lips has been “flexible leasing.”  

So, what is flexible leasing exactly? 

CRE company Feldman Equities defines flexible leases, or short-term leases, as those that last from one to three years and allow tenants to quickly exit the space if it no longer fits their needs.  

Leases from around five to eight years are typically considered medium-term while leases from 10 years and beyond, which have traditionally been the lifeblood of CRE landlords, are considered long-term.  

New accounting standards, contract employees and remote work are driving the need for flexible leasing  

Although the pandemic has accelerated the need for more responsive contractual arrangements, flexible leasing isn’t completely new.   

In fact, several years before COVID-19 hit, landlords and tenants were nudged to embrace more flexible leasing options.  

According to the International Workplace Group (IWG) the introduction of the new global accounting standard IFRS16 in January 2019 that has put commercial leases on the balance sheet for the first time was a substantial contributing factor.  

It meant that companies for which office rental was a significant expense had an increased level of borrowing, which created an incentive to shift to more flexible leasing.  

Then, as the new generation of technologies encouraged people to work remotely, companies needed less office space which they saw as a huge opportunity to reduce their rent bill.  

What’s more, co-working spaces and collaboration hubs have opened up a whole new way of working for contract employees who have been on the rise in the aftermath of the 2008 economic crisis (in 2018, one in five jobs in the U.S. were held by a worker under contract).   

According to Instant Offices, one of the world’s largest procurers of office space, organizations as far back as 2018 were seeking bigger and more agile workspaces. 

At the time, the “Space as a Service” model emerged as the game-changer in the CRE world, driving some of the biggest flex deals of that year in New York and London, and included household brand names like Microsoft, Amex, IBM, GSK, Adidas, and Facebook. 

The pandemic transformed the way space is leased out with a focus on harnessing disruption  

If there’s one thing that the 2020 global crisis imparted to CRE teams, it’s that they don’t want to be locked into rigid long-term contracts for office space, IWG has pointed out.  

With so many burgeoning alternatives more conducive to the changing needs of businesses, entering into long-term agreements no longer seems viable.  

As disruptive cycles become shorter yet more frequent, we expect short-term leases to be a must for organizations looking to reevaluate and regroup as they decide their way forward amid so much change.  

Flexible leasing makes more sense from the perspective of lean practices and cash management  

The biggest perk of flexible leasing is that it gives businesses the option to expand and contract as needs fluctuate, according to co-working space company CoSuite 

This means that companies can scale up quicker to larger office spaces when their business expands and scale back when it downsizes – all without a commitment to heavy, fixed investment in real estate.  

Leasing commercial spaces for a long time, on the other hand, means that organizations may be stuck with a lease they’ve outgrown.  

The added risk is being locked into an arrangement for a large lease with mounting overhead that companies can’t keep up with.  

Conclusion: Flexible leasing is the leasing model of the future 

While the CRE industry was already feeling the need for flexible leasing before the pandemic, COVID-19 swung the doors open to more agile contractual agreements.  

Hybrid work, the rising number of gig workers and new accounting practices have pushed tenants to seek shorter-term leases that provide less hassle and an easier way out. 

As office employees continue to demand hybrid work arrangements and disruption remains the name of the game, landlords will have to appease today’s tenants and offer flexible leases that provide greater freedom amid dynamic markets and business uncertainty.   

EAIGLE is at the forefront of empowering organizations with workspace management tools as they leverage the benefits of flexible leasing. Learn more about our solutions by visiting eaigle.com