Commercial Real Estate: Small to Midsize Office Spaces an Under-tapped Market
Small to midsize businesses (SMBs) that require small to midsize office space, are massively underserved, leaving great opportunity for those real estate investors who are looking for new buy and hold commercial real estate investment opportunities.
Nationwide, more than half a million tenants occupy office spaces that are less than 5,000 square feet; about 80% of the office market. Yet, many commercial real estate investors avoid them, the general consensus being that they just aren’t worth it.
Andy O’Brien, co-founder of HiRise, an online marketplace for commercial real estate rentals that is similar to vacation rental spaces like VRBO and HomeAway, says, “It takes the same amount of time and resources to deal with a 4,000-square-foot tenant as it does with a 40,000-square-foot tenant. The market is broken for smaller tenants because the big brokerages are not focused on tenants that size.”
A good example is the Washington D.C. area, where small tenants outnumber large tenants 3 to 1; nonetheless, more than 46 million square feet of small space remains vacant because, according to HiRise, the traditional leasing policies cater to large tenants.
This could be great news for investors who are interested in a relatively under-served niche.
For those who love to buy and hold, HiRise- set to launch next month- could be just one in a number of marketing vehicles to serve the investor who has their money on commercial properties aimed at SMBs, government contractors, and startups- or anyone else, for that matter, who needs a smaller space for shorter lease periods.
Says O’Brien, “Our model is directly from the building owner, so you’re taking out that layer of approvals needed for a sublease and tapping into 80 percent of the market by simplifying the process. There is an interactive floor plan, a short form, all online.”
Furnished or unfurnished, smaller offices can typically be rented for shorter lease periods as the major renovations that often go along with the needs of major corporations are rarely required.
The demand for these kinds of arrangements stems from two new realities in the commercial real estate arena: Shorter lease terms are desirable due to market and economic uncertainty and younger entrepreneurs, accustomed to doing things online, who are demanding flexible workspaces for new companies.