Companies that provide short-term flexible offices to rent are referred to in many ways. We usually call them "Flexible Office Companies" or simply "Flexible Offices." But they are sometimes called coworking spaces, flex offices, flexible workspace providers, serviced offices, business centers, professional office suites, and short-term office rentals, to name a few.
If you're not familiar with the concept, think of it like this. A flexible office provider might lease a couple of large floors in an office building, construct the space with dozens of private offices and shared amenities like conference rooms and kitchens, furnish it all, and then rent the individual offices to various companies. And hopefully, make a profit.
Therefore, flexible workspace companies offer turnkey office space and handle all of the day-to-day management of the facilities. Unlike a traditional office lease, where the landlord tosses you the keys and you fend for yourself, these flexible workspace providers supply everything a company needs to run a business efficiently, from refilling reams of paper for the printers to connecting with high-speed internet to stocking endless amounts of coffee and tea. An NYC flexible workspace might be a good option for your company if you need to quickly rent a furnished office in New York without the hassle and onus of a traditional office lease.
A Brief History of the NYC Flexible Office Market
Back in 1989, when Madonna's "Like a Prayer" was topping the radio charts and Nintendo Game Boys were all the rage, a small real estate company opened a new office space concept in Brussels, Belgium. The company offered turnkey serviced office spaces catering to the needs of small businesses. Widely recognized as the de facto capital of the European Union, Brussels proved to be the ideal launching pad for this new category of office space. A decade later, Regus opened its first office in New York City in the Helmsley Building at 230 Park Avenue, and the rest is history.
Many copycats soon appeared. Like Regus, these executive suites catered mostly to professional services, like attorneys and accountants. Another decade passed, and this time, a budding entrepreneur and an architect started a similar shared office concept in Dumbo, Brooklyn, called GreenDesk. Vastly different from the buttoned-up executive office suites in Midtown Manhattan, these guys created an eco-friendly coworking space with a focus on sustainability. They soon sold the company to their landlord and invested the profits into a startup called WeWork, which opened its first location in Soho at 154 Grand Street in 2010.
Fast forward another decade, and there are a plethora of coworking clones, not just in New York City but around the globe. However, the word "coworking" is a bit of a misnomer these days. When you think of coworking, it brings to mind an open workspace with dozens of desks and people from disparate companies working elbow to elbow. That's not the case. Many coworking companies don't offer shared workspaces like that; most offer furnished offices that are completely private and dedicated to the sole use of one company. However, office amenities, like conference rooms, kitchens, and lounge areas, are shared with other companies at each location.
The Covid-19 pandemic led to significant transformations within the industry. Some flexible office companies went belly-up, while others lost their leases at specific locations. In a scramble reminiscent of musical chairs, some providers seized the opportunity to take over their competitor's floundering office centers, giving new life to the flexible office space market.
The turbulent commercial real estate market also altered how most flexible office companies structure their own leases with their landlords. Before, they would simply sign a lease, just like any company that wants to rent office space. However, these days, most flex office providers form management deals with landlords. In other words, they are going into business together. The landlord supplies the office space; the flex provider manages and markets the offices; and both parties share in the profits. This arrangement offers less financial risk for the flex provider -- and perhaps less profits, too -- but it enables them to weather challenging market conditions.
But how does this impact the companies who rent flexible offices? It gives them more stability than they would otherwise have, whether they realize it or not. Since the landlord is now in partnership with the flexible office company, it's unlikely that an office center will abruptly close. These closures have happened frequently over the past few years. They usually occur when a flexible provider is behind on rent and defaults on a lease. So, these management agreements are a win-win-win.
Understanding the Financials of Flexible Office Spaces
The cost of flexible offices in NYC varies by building class, location, the quality and age of the office installation, and, of course, by the amount of space you rent. Internal offices (ones with no external window) rent at a discount from windowed offices. For example, if a 125 sq ft windowed office costs $2500 per month, an internal office around the same size would cost closer to $1500 per month.
As you would expect, renting an office in a Class A Midtown office building would command a higher office rent than a lower-grade loft building in the Garment District. Expect to pay more office rent in New York if the building has impeccably dressed security guards, a double-height lobby with original artwork and marble galore, modern turnstiles with swipe-and-go capabilities, and a bank of state-of-the-art elevators with little screens playing Bloomberg News.
How flexible office companies charge for their services has changed over the years. Almost all have moved away from the nickel-and-dime billing approach to a more all-inclusive system. Tenants strongly prefer all-inclusive rent because who wants to be told one price for office rent, only to find out later that internet, cleaning, and coffee are extra? Just keep it simple.
Price Per Square Foot
On a square-foot basis, the price of a flexible office might seem astronomical. But you need to make sure you're comparing apples to apples. The price per square foot on a traditional office space only includes the base rent -- nothing else. The price of a flex office generally includes everything: internet, phones, furniture, cleaning, electricity, taxes, kitchen supplies, reception services, IT support, and conference room usage. Keep in mind that there is no office loss factor on the quoted square footage of a flexible office like there is for traditional offices.
So, to compare the two by price per square foot, you'd need to figure out a way to reduce the value of these services from the price per square foot for that metric to have any real meaning. And that's not possible to do in any meaningful way. I would forget about the price per square foot and focus on the all-inclusive monthly or annual price. Compare it to the total price and value of your other options.
Conference room usage is usually handled in one of two ways. The most common is the credit system. Tenants are allotted a certain amount of conference room credits per month. The size of the conference room and the amount of time reserved dictates the number of credits required. The number of monthly credits you receive as a tenant is based on the size or price of your office space. Credits don't roll over, so use them or lose them.
The second way flexible office providers handle conference room usage is simply pay-as-you-go. A large conference room might cost $100 per hour, with the ability to book it in 15- or 30-minute increments. So, if you rented the conference room for 45 minutes, you'd be billed $75. You do not have to pay at the time of use, as your monthly billing statement will reflect the conference room charges.
Minimal Security Deposits
When renting a New York office, your company must provide the landlord with a security deposit. Traditional office leases and subleases usually require more security than an agreement with a flexible office provider. The security deposit is commonly perceived as a safeguard against potential office damage, serving as a means to offset any related repair costs. However, there is another reason for the security deposit, which is a hot button for landlords.
If the tenant defaults on the lease and stops paying rent, the landlord will want the tenant to vacate the office immediately. But this could take a while if the tenant is uncooperative. Why does it take so long to evict a non-paying tenant? Well, the landlord must legally evict a non-paying tenant, and it can take months in the court system and incur a hefty legal fee from their attorney. To hedge against this scenario, landlords require sufficient security deposits if your company signs an office lease in NYC. The exact amount depends on the company's creditworthiness. The starting point is a 3-month security deposit for an established company with a multi-year track record, strong financials, and a Good-Guy Guarantee.
But how much is the security deposit for a flexible office in NYC? Most flexible office companies require a 2-month security deposit. The reason it's less than the amount a landlord requires is because a flexible office does not have to legally evict their tenants. They can simply deactivate the tenant's building access cards and prevent their employees from entering the building. Without getting too granular, the agreement you sign with a flexible office provider -- called an office license agreement -- does not offer the same legal protections to the tenant as a New York City office lease. Therefore, the flex office provider can accept lower security deposits than a traditional landlord because they don't have to worry about a tenant squatting in an office space for the next six months.
Comparing the Top Flexible Office Spaces in New York City
The top flexible office spaces in NYC all have one thing in common. They're all located in Class A office buildings. These locations provide an excellent opportunity for small companies who otherwise would be unable to rent an office in a Class A building because even the entry-level office spaces are much larger than they require.
Of the 300 or so flexible offices in NYC, only a few dozen are considered high-end offices suitable for sophisticated hedge funds, financial services, and private equity firms. Client-facing firms are usually more concerned about renting Class A offices than those that do not meet with clients face-to-face. Many of these companies think their clients might be reluctant to invest their hard-earned cash with a firm that does not look successful.
Most of these Class A office buildings tower over Midtown Manhattan and are dotted along major arteries like Avenue of the Americas, Fifth Avenue, Park Avenue, and 57th Street. These top-tier offices occupy high tower floors and have views suitable for a Master of the Universe, to quote Tom Wolfe.
Here are a few of the best serviced offices in New York City:
It's tough to compare these flexible offices with each other because they all have similar attributes, such as highly desirable locations, first-class lobbies, premium office renovations, and a wealth of amenities. The decision to rent one over another will likely come down to the convenience of the building's location, the current office availability, and the office rent and current incentives.