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Boston Properties Fills Gap Between Co-Working and Long Term Leasing With “Flex” Space

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As companies grow out of the start-up stage, they start to be able to think past their immediate day-to-day needs. They realize that creating a group culture can help almost every part of their business and will set the stage for the future direction of the company. Bryan Koop, Executive Vice President of Boston Properties’ Boston Region has seen this happen so many times that he even has a name for it.

“We call it The 10th Person Rule,” Bryan said during a conversation last week, “Once the tenth person is hired there is a sudden realization: we need our own space to create our own culture.”

Koop, founder of Boston Properties University, has long been obsessed with the impact of space and place on people and organizations. Boston Properties does their best to create thoughtful, impactful spaces. They are one of the biggest office landlords in the U.S so they know first hand the importance a good office can have on a business of any size. Offices have traditionally catered to large tenants. Co-working has recently captured the other end of the spectrum, small teams or individuals that still need access to a professionally designed office.

But there are still quite a companies in between. He told me about his realization that there was a large group of businesses that were not getting their share of attention from the office real estate industry. “We saw quite clearly that small to medium enterprises (SMEs) were a growing segment of the market and that their needs were not being met,” Koop said. “Look no further than the sublease market. We reviewed our own portfolio of 14 million square feet in Boston and found 100 companies subleasing 1,200,000 square feet of space. Of those, 50% had less than 4-year lease term and less than 7,000 square feet. These small to medium enterprises were getting their desired shorter lease terms but they were also getting all the hassles and costly friction of the cumbersome long-term lease process. Not to mention buildout risk and layers of inefficient communication with the real operator of the building. Businesses that have this type of arrangement are at the mercy of tenants from whom they subleased.”

That was when the Boston Properties team decided to create Flex, a new product that offers storefront glass workspaces grouped around shared facilities such as a kitchen and conference rooms. The license agreement provides for a term length of one month to three years, much like a co-working desk. However, Bryan is quick to explain the distinction.

“We don’t want to be the receptionist, plan social activities or create yet another networking event. We get out of the way and allow the client to create their own brand and culture in a  highly flexible and dependable workspace. It’s not our culture, it your culture,” Bryan said.

Boston Properties installed their first Flex location in the iconic Prudential Tower in the amenity-rich Prudential Center in Boston.

“We had all the suites rented in a month,” Bryan told me proudly. True to the name the first Flex office space was built with removable walls so it could easily accommodate growing businesses, something companies previously used co-working spaces for. One of the unexpected benefits of the Flex offering was that it was a selling point for the building’s traditional tenants.

“We were able to put a tenant in the Flex space temporarily while their long-term office space was being built out,” Bryan explained.

For him, this was a validation that a Flex space could increase the value of a building, not decrease it.

“One of the first pushbacks we got against the concept was from the investment community that worried about the ability to value a space without a predictable long rent roll,” Koop said, adding, “that is just ridiculous, we can value a hotel which has daily changes to occupancy, so why not short-term office space?”

While it is true that some investors have downgraded the valuations of buildings that are reliant on WeWork as one of the main tenants, Boston Properties’ Flex offering is hardly the same thing. Prudential Tower has 1.1 million square feet of office space, so having 30 to 50 thousand square feet of short-term leasing options is more like an amenity than a fundamental change to the building’s NOI.

Another benefit that this new leasing arrangement created for tenants was the shortening of the actual lease document itself. Without any clauses for build out liability, sublease provisions, or insurance clauses, the length went from hundreds of pages to around four pages.

“Tenants can actually read this license agreement. They can quickly understand the terms and don’t need a real estate lawyer to review all the fine print,” Bryan said.

This is a big benefit to management at these fast-growing companies since they need as much time as possible to focus on growing their business.

“These types of companies are looking to outsource all of the hassles that are normally associated with finding a new office. We expected that most of them would want to bring their own furniture but it turns out that they just wanted us to provide the furniture as well, eliminating another cumbersome and costly task,” Bryan told me.

Now Boston Properties is about to open their second Flex location at 100 Federal Street in Boston’s Financial District and they are incorporating some of the lessons that they learned from their first location into the design of the second.

“One thing we noticed was that even though we had communal conference rooms, most companies wanted a small conference room of their own,” Bryan said. Now each office will come with their own private conference room that can be used for impromptu meetings. Bryan’s team also realized how important a secure wifi connection was to most tech-driven companies. In response, they partnered with Join to give each office its own wifi connection, eliminating any risk of maleficence by a co-tenant.

Boston Properties is the largest publicly traded REIT in the country. If they are able to scale up their Flex business line they could rapidly become one of the biggest players in the space. There has been some pushback recently against WeWork by major landlords. Flex bypasses many of these concerns while still giving office tenants similar flexible terms. In the end, these new options will help the entire small business world and might just change the way the property industry caters to their tenants.

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