How to Analyze a Flex Space Deal Like a Developer
If you’re an aspiring commercial real estate investor looking for your first deal, flex industrial might just be your most strategic entry point. Why? It’s simpler to build, easier to lease, and remarkably scalable - making it the ideal product type for investors transitioning out of residential or small business ownership.
But the key to succeeding with flex space is learning to analyze it the way a developer does - not just as a buyer chasing cash flow, but as someone who’s building long-term value from the ground up.
In this post, I’ll break down how to underwrite a flex deal like a developer, including:
What kinds of rents you can expect (and how to find them)
Realistic construction costs and budget planning
How to structure financing and think through your capital stack
How to gauge tenant demand and avoid sitting on vacant space
By the end, you’ll have a clear lens for evaluating flex space opportunities - and the confidence to pull the trigger on a profitable deal.
understanding flex space fundamentals
Flex space - short for “flexible use industrial” - is one of the most versatile asset classes in commercial real estate. Think of it as a hybrid between warehouse and office, typically designed to accommodate small businesses that need both functional workspace and administrative areas under one roof.
What makes it particularly attractive for newer investors is its simplicity. The structures are usually single-story, metal or tilt-up concrete shells with basic interior build-outs. No complex plumbing systems like you’d find in multifamily. No constant turnover like retail. Just clean, configurable space that businesses can adapt to their needs.
Typical features include:
Small-bay units (1,000–5,000 SF each)
Roll-up garage doors and 14’–20’ ceiling heights
Minimal shared walls to allow easy demising
Basic office finishes (restroom, HVAC, reception)
Large parking ratios and drive-up access
The most common size for new developments falls in the 10,000 to 50,000 square foot range. It’s also one of the most buildable products from a zoning perspective - usually allowed in light industrial or commercial business zones.
Because the use cases are broad (service providers, tradespeople, small logistics firms, fitness studios, and even creative offices), tenant demand tends to be steady, especially in growing suburban markets.
Rental Revenue - what should you expect?
The first, and arguably most critical, step in analyzing a flex space deal is understanding the rental income potential. Because flex is typically leased to small businesses on triple net (NNN) leases, your revenue projections are fairly predictable once you’ve confirmed your market assumptions.
How to Find Local Comps
Start by identifying other flex or light industrial properties within a 3–5 mile radius. Look for:
Asking rents on listing platforms like LoopNet, Crexi, and local brokerage sites
Recently leased comps from brokers (ask directly for rent rolls)
Existing owner-users who might share rates (especially in tight-knit submarkets)
Focus on buildings with similar construction quality, unit size, and tenant type. In markets with strong demand and limited supply, you might even be able to push above-market rents - especially if your building is new and offers upgraded features like glass storefronts, HVAC in warehouse space, or ample parking.
What’s a Realistic Rent Range?
In most secondary and tertiary markets, flex rents typically fall between $12 to $18 per square foot NNN, while in larger metros or coastal cities, you might see $20–$25+ NNN.
Break that down:
A 3,000 SF unit at $16/SF NNN = $48,000/year or $4,000/month in base rent
Add NNNs of $3–$4/SF for taxes, insurance, and CAM (common area maintenance), which tenants pay directly
The key advantage here is predictability - you’re not absorbing operating costs like you would in multifamily. This makes flex an excellent model for passive income once stabilized.
Pro Tip:
Target 5–10% below top-of-market rents when pro forma underwriting. That gives you room to exceed expectations - or reposition if the market softens.
construction costs - budgeting for the build
One of the most appealing aspects of flex space is its relatively low and straightforward construction cost - especially when compared to multifamily, hospitality, or complex mixed-use developments. But that doesn’t mean it’s cheap. And underestimating hard or soft costs can kill your margins before your first lease is signed.
Typical Cost Ranges
On average, new ground-up flex space construction falls in the $100–$160 per square foot range depending on:
Location
Site conditions (grading, utilities, access)
Level of office finish-out
Size and quality of the building (economies of scale)
Keep in mind that the more office space you include, the higher the cost per square foot. That’s why many developers minimize office space to stay lean and let tenants customize their own layouts post-delivery.
Lessons from the Field
Flex developers often learn the hard way where not to cut corners. Common mistakes include:
Roll-up doors that are too small (go at least 12’x14’)
Underestimating electrical load requirements
Too few parking spaces (at least 3–4 per 1,000 SF is ideal)
Inflexible demising walls that complicate future splits
financing structure - know your capital stack
Understanding how to fund a flex space development is just as important as estimating your rents or construction costs. As a developer, you’re not just evaluating a deal - you’re designing the financial architecture behind it. And the way you stack your capital can dramatically impact your return and your risk profile.
How Flex Deals Are Typically Financed
Most flex space developments are funded through a combination of bank financing and investor or personal equity. Construction loans from regional or community banks are common. These typically cover 65% to 75% of your total project costs and come with an interest-only period during construction and lease-up - usually 12 to 24 months.
To close the gap, you’ll need to bring in 25% to 35% as equity. That can come from your own capital or from investors who partner with you in exchange for a share of the profits or preferred returns.
Once your project is leased and stabilized, the common play is to refinance the building into permanent debt based on its appraised value. This can allow you to pull out a significant portion - sometimes all - of your initial equity while retaining long-term ownership.
SBA Loans for Owner-Users
If you’re planning to occupy at least 51% of the building with your own business, the SBA 504 loan is a game-changer. It allows you to put down as little as 10%, access fixed interest rates, and lock in long amortization periods. This structure is ideal for owner-operators who also want to invest in real estate without giving up cash flow.
What You Need to Know
The most important thing is aligning your financing with your endgame. If your goal is to build and sell quickly, keep your cost of capital low and stay flexible. If your strategy is to build and hold, focus on locking in long-term debt that enhances cash flow and minimizes refinancing risk.
Developer’s Insight:
“The capital stack isn’t just numbers—it’s a roadmap. If you know your exit, you’ll know how to fund your way in.”
Tenant Demand - is there a real market?
Even if your flex building is perfectly designed and financed, none of it matters if you can’t lease the space. Understanding tenant demand is where many new developers fall short - and it’s the reason some well-built properties sit vacant.
So how do you determine whether a market will actually absorb your flex product?
Start with Supply and Vacancy
Look at how much comparable space is currently available in your target submarket. Are existing flex buildings sitting empty, or are they fully leased with waiting lists? High occupancy rates and rising rents are strong indicators of unmet demand.
If you're hearing that tenants are having trouble finding quality space under 5,000 square feet with a roll-up door and basic office, you're likely in a sweet spot.
Know Your End Users
Flex space isn’t just one thing. It serves a diverse group of small businesses, including:
Electricians, HVAC, and plumbing contractors
Light manufacturers and fabricators
Fitness studios and personal trainers
Cabinet makers, woodworkers, and artists
Ecommerce storage and local delivery hubs
Your job is to determine which of these are active and growing in your area. Talk to brokers. Visit existing properties. Ask property managers what types of tenants are calling and what they’re looking for.
Watch for Underserved Niches
In many cities, zoning restrictions or developer preference have created a shortage of new flex inventory - especially for smaller bays under 3,000 SF. If local businesses are forced into outdated industrial parks or converted garages, that’s an opportunity to deliver fresh, modern space at a premium.
Pro Tip:
“Pre-leasing even a portion of your building - before you pour the slab - can significantly reduce your risk and improve financing terms.”
When demand is strong, the speed to full lease-up can be shockingly fast. One developer leased an entire 20,000-square-foot flex building within 60 days of completion - all because he built exactly what the market was begging for.
putting it all together - sample deal analysis
Now that you understand how to evaluate rents, estimate construction costs, structure financing, and assess demand, let’s put those pieces together in a simplified flex space deal analysis. This is where a developer’s mindset really kicks in - looking at numbers not just for cash flow, but for equity creation and long-term value.
Assumptions:
Building size: 20,000 square feet
Construction cost: $140 per square foot
Total project cost: $2.8 million
Rent: $18/SF triple net
Cap rate at stabilization: 7%
Occupancy: 100%
Annual Rental Income:
$18/SF × 20,000 SF = $360,000 gross rent
Because the lease structure is triple net (NNN), the landlord’s expenses are minimal. After taxes, insurance, and maintenance are covered by tenants, most of that rent hits your bottom line.
Stabilized Property Value:
Net Operating Income (NOI) ÷ Cap Rate
$360,000 ÷ 0.07 = $5.14 million
Equity Created:
Stabilized Value – Total Cost =
$5.14 million – $2.8 million = $2.34 million in equity
That’s more than doubling your money before even refinancing or exiting the property. And once stabilized, you can refinance based on the $5.14 million valuation, pull out a portion of your equity, and still retain full ownership of a cash-flowing asset.
Why This Matters
This is what separates a developer from a passive investor. You’re not just buying income - you’re building value. When you structure the deal right from the start, you can walk into a property that prints cashflow and builds long-term wealth from day one.
Conclusion: The developer’s mindset
Analyzing a flex space deal like a developer means looking beyond surface-level returns. It’s about seeing the full picture - from raw land to stabilized asset - and understanding how each decision you make affects your profitability, scalability, and long-term wealth.
When you get your arms around:
What the local market will pay in rent,
What it realistically costs to build,
How to structure financing based on your exit plan, and
Where real tenant demand is hiding...
…you stop guessing and start building with confidence.
Flex space is not just simple - it’s strategic. It allows new investors to enter the commercial space with lower barriers and strong upside. But only if you treat it like a business, not a gamble.
For those interested in delving deeper into commercial real estate investing, check out our course offerings. The courses provide in-depth insights, real-world case studies, and practical strategies to help you navigate the complexities of commercial real estate and achieve success in your ventures. Whether you're a seasoned investor or just starting in the world of commercial real estate, there's always more to learn. Equip yourself with the knowledge and tools you need to thrive in commercial real estate!
If you’re an aspiring commercial real estate investor looking for your first deal, flex industrial might just be your most strategic entry point. Why? It’s simpler to build, easier to lease, and remarkably scalable—making it the ideal product type for investors transitioning out of residential or small business ownership.
But the key to succeeding with flex space is learning to analyze it the way a developer does—not just as a buyer chasing cash flow, but as someone who’s building long-term value from the ground up.
In this post, I’ll break down how to underwrite a flex deal like a developer, including:
What kinds of rents you can expect (and how to find them)
Realistic construction costs and budget planning
How to structure financing and think through your capital stack
How to gauge tenant demand and avoid sitting on vacant space
By the end, you’ll have a clear lens for evaluating flex space opportunities—and the confidence to pull the trigger on a profitable deal.