Flex Space Industry Outlook
American Real Estate’s Rising Star
Flex space continues to emerge as the most exciting asset class and investment strategy in real estate. The growth of the flex space asset class is being driven by the continued growth of eCommerce coupled with the unique once-in-a-lifetime impact of the Covid-19 pandemic. Join us as we explore the unprecedented opportunity that exists in the current flex space real estate industry.
E-commerce in America: A Runaway Train
It’s no secret that e-commerce has been booming in the United States for the last two decades. Over the past decade, retail e-commerce sales have soared from $1.3 trillion to $6.3 trillion in 2024, according to Statista. For years, America’s largest companies like Walmart, Amazon, and Target have leaned on online sales to drive growth. However, the Covid-19 pandemic has sparked a secondary surge in e-commerce that’s being driven by America’s small businesses. Many investors still do not appreciate the unprecedented impact that the pandemic had on small businesses, the American economy, and the national real estate market. In the wake of the pandemic, 71% of small businesses in America have attributed their survival in 2020-2021 to digitization. During a period where the word “normal” was thrown out the window, small businesses had to quickly bolster their online offerings in order to remain competitive. Now, as of 2023, a staggering 95% of small businesses have moved at least one portion of their business online. With this immense shift towards digitization, these businesses will all need places to store inventory and run their businesses–a bullish sign for flex space real estate.
According to the Small Business Administration, there are over 33 million small businesses in the U.S. and the overwhelming bulk of these companies are enhancing their digital presence, leaning into e-commerce, and selling products to people around the world. On the warehouse end, supply has yet to match demand. But, what makes flex space more attractive than warehouses or other more traditional industrial assets?
Five key reasons why business owners, investors, and the posse here at Riverbank Capital all love flex space:
Scalability:
Landlords can divide large buildings into smaller, more custom units. This not only optimizes the utilization of space but also generates increased income per square foot. The scalable nature of flex space allows for a dynamic response to market demands, ensuring that our properties remain adaptable and financially lucrative.
Customization:
Flex space provides us with the unique advantage of easy customization to meet the changing needs of the market. Whether it's adapting layouts, integrating modern amenities, or responding to emerging industry trends, our flex space developments are designed to be versatile, ensuring that they stay relevant and in demand.
High Return on Equity::
Riverbank Capital leverages automation in management processes, significantly reducing the cost of maintenance. This strategic approach not only enhances profit margins for investors but also ensures that resources are allocated efficiently, contributing to a high return on equity. Our commitment to streamlined operations is reflected in the financial success of our flex space investments.
Attracting More Tenants:
The versatility of flex space makes it a magnet for a diverse range of tenants. Riverbank Capital attracts large established companies seeking operational efficiency as well as startups outgrowing their initial spaces. The ability to accommodate various business sizes and models ensures a steady influx of tenants.
Beneficial For Tenants:
Flexibility is not just a benefit for investors but a key advantage for tenants as well. Riverbank Capital's flex space offerings empower tenants with the ability to adjust the size of their space and the duration of their leases. This level of flexibility is a magnet for clients, translating to increased demand and higher rents.
Additionally, the flex space industry is currently categorized by the three following metrics:
Five key reasons why business owners, investors, and the posse here at Riverbank Capital all love flex space:
Rising Rents and Strong Demand:
Industrial in-place rents reached an average of $7.39 per square foot in July 2023–up 7.5% annually. This rising demand was mainly driven by the evolving need for customized warehousing, distribution, and manufacturing as America’s small businesses rushed to enhance their online offerings. Simply put, supply is not meeting demand.
Favorable Vacancy Rates:
As of July 2023, the national vacancy rate sat at 4.45–a rate that highlights the attractive value proposition of flex space.
Rapid Expansion:
As of July 2023, roughly 60 million square feet of industrial space was under construction worldwide, signaling the industry’s rapid expansion. This expansion includes a flurry of investment in office warehouses, distribution centers, fulfillment hubs, and last-mile delivery networks that are reshaping America’s supply networks.
Investors are drawn to the stability and growth potential offered by industrial assets as market conditions shift in investors’ favor. So, what’s the bottom line? Flex space offers an incredibly rare opportunity in the real estate market: a win-win. Tenants win because they get access to a space that’s more customizable and convenient. Even better, landlords win because they get a higher income per square foot, access to a large, diverse customer base, and the knowledge that growth in this industry is just getting started.