But there will always be a need for traditional office space, Armstrong says, and he's skeptical that flexible work space is cutting demand significantly.

Virtual office space "is growing to a degree, but I don't think it impacts the traditional office market too much," Armstrong says. "We've got industries growing all the time, and as businesses grow they need more space."

"There are just certain aspects of productivity that are better served in a workplace environment," he says. "It's also quite a transition to embrace the virtual-office concept. Not everybody has done that."

For businesses wavering between the two models, one way to decide is to consider cost, credit and human capital needs, says Jeff Stibel, CEO of Dun & Bradstreet Credibility.

"Businesses are struggling right now and they're trying to make decisions both on how to save money and how to grow their business," Stibel says.

"Obviously, you can save money by moving to a virtual office, but are there drawbacks to it," Stibel says. "If your business starts to expand somewhat quickly, you can be limited in terms of that virtual space."

"Traditional office space is starting to get very affordable because there is an abundance of space out there, particularly in second-tier markets where a lot of these small businesses get started," Stibel says, naming Greensboro, N.C. and Short Hills, N.J., as examples.

When dealing with a traditional lease, Stibel says business owners should consider:
  • How long is the lease?
  • Is there adjacent space so the business can expand?
  • What is included in the lease?

-- Written by Laurie Kulikowski in New York.

To follow Laurie Kulikowski on Twitter, go to: http://twitter.com/#!/LKulikowski

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