In this article, we unpick ‘Flex Arbitrage’. Looking at which US cities make more margin on their flexible workspace and coworking desk rates, compared with their traditional long-term lease rent. You will learn:
Flex arbitrage is the concept of flexible workspace operators renting traditional office space and letting it piecemeal as flex space at higher rates. These ‘higher’ rates of course have to account for operational costs (capex and opex), not just profit alone, however, selling office space as flex space to third-parties allows for this mark-up per square foot of purchased space: this is “Flex Arbitrage”. As such, this analysis is not a commentary on yield or net revenue, but a measure of that mark-up by location, and therefore a thought-piece on top US cities for operators and landlords to turn traditional offices into coworking space.
At CoworkIntel, we have a rich catalogue of data that we package into tailored insight dashboards that allow flex operators and landlords to optimize their businesses. We pulled this data from across US cities to build the below chart, plotting monthly rents for traditional space vs coworking space.
You can see the trendline above, which represents the average relationship (1:3) between traditional office rent and flex rates offered. Jump to what this positioning indicates about your city.
If you look underneath our trendline, you will find cities with below average margin between rent and rates; lower Flex Arbitrage ratio. The lowest margin cities in the US are:
The above locations are the only coworking markets with a Flex Arbitrage ratio under 2: flexible workspace rates are under double that of office rent per square foot.
Equally, above that same trendline are the US flex markets with above average Flex Arbitrage ratio. The highest margin cities in the US are:
Our top 4 US coworking cities all have ratios in excess of 5, meaning that flex space generates 5x the revenue of traditional office space per square foot. In the case of St Louis particularly, this hinges on a standout low average office rent. But what does this Flex Arbitrage ratio mean?
In the table below you can sort and search to find your city. There you have average advertised private flex desk rate per month for each city, followed by the price per square foot, per year for both flex space and traditional office space. In the final column you will find the Flex Arbitrage ratio which indicates the coworking rate margin over traditional office rent.
Once you have identified your closest city, you can see how your ratio compares with others, and against the average of 3.3.
So we can see how much both traditional and flex rates vary from market to market, and importantly, the disparity in Flex Arbitrage ratio. But why is it important?
A high Flex Arbitrage ratio, or large margin across a city likely indicates a high confidence in the market, but could also mean that a market is monopolised or lacking in competitive supply. This suggests that high ration markets are ripe for investment; not least because the margins are so great.
A low Flex Arbitrage ratio on the other hand could indicate market saturation. Maybe there is a large supply or competition driving rates down, or maybe traditional office rent is disproportionately high compared with flex demand.
In either case, actions and strategy are indicated, specific to your flex market. You can also check out high revenue US flex markets here. Ultimately the critical thing is understanding your location and competitive set in order to drive the correct decisions and maximize revenue. Our data comes in pretty handy in understanding a flex market and optimal strategy - why not enquire about a free trial?Enquire about a free trial