Flexible office giant IWG this past week announced the opening of a new venue occupying all 18 floors of Swire Properties’ 8 Queen’s Road East in Wan Chai, adding 67,000 square feet (6,224 square metres) of flexible space to Hong Kong’s becalmed office market.
“More companies are downsizing office spaces to efficiently manage their office footprint,” said Paul MacAndrew, country manager for IWG in Hong Kong and Greater Bay Area. “The concept of flexibility will be critical for the office market moving forward – flexible workspaces like IWG’s centres are able to provide such flexibility in terms of a cost and space perspective,” he added.
IWG opening in the newly completed office tower is moving forward despite overall vacancy in Hong Kong’s office market having increased to a record 9.8 million square feet (910,450 square metres) in the first half of 2022 as more companies downsized in the face of economic headwinds and ongoing quarantine requirements which have rocked the Asian financial hub.
Some analysts are pointing to higher demand for flexible office space, where tenants can avoid long-term leases and punishing fit-out costs, as appealing to multinationals and other large occupiers waiting for greater clarity on Hong Kong’s future before committing to new leases in a market which still ranks as the most expensive in Asia Pacific.
Downsizing as Demand Driver
The amount of office space leased in Hong Kong fell by 279,000 square feet in the second quarter of 2022, as the city hurled its zero Covid strategy against the latest wave of the pandemic, bringing overall leasing growth in the first six months of the year down to 185,400 square feet.
The new Spaces location features 900 workstations, including 188 private offices laid out across floors with typical lettable floor areas of 2,744 to 3,854 square feet according to IWG’s press release.
Richie Lau, director of office services at Colliers, noted that IWG, which is the parent company of Regus, as well as Spaces and other flexible office brands, is well-positioned to market the new facility given its existing network of clients.
“IWG has the strongest global network of MNC clientele at all sizes,” said Lau, who noted that “demand for flex offices continues to be significant in Hong Kong because MNCs are unable to forecast their future office growth needs due to market uncertainty, ongoing geopolitical tensions, travel restrictions and the closure of international borders.”
During February of last year IWG had signed one of its biggest deals in Hong Kong when it struck a partnership with Standard Chartered for the UK bank to give its 95,000 employees globally, including 9,000 in Hong Kong, the option of working from the firm’s flexible office locations. That deal was struck at the same time that Standard Chartered has been cutting back on its traditionally leased space in Hong Kong.
IWG will need its marketing muscle to overcome broader challenges in the Hong Kong market with occupancy for flexible space in the city having fallen to an average of between 70 and 75 percent this quarter from a rate of 85 percent in the same period last year, according to Colliers figures, with Lau attributing the slide to the fifth wave of the pandemic earlier this year.
That slide in occupancy may also correlate with a drop in pricing for flexible space in the city, with the monthly cost for a dedicated desk at Spaces’ Lee Garden 3 office now listed as starting at HK$4,880 per month, according to the company’s website, which represents a 5 percent price cut since August 2020 according to archived data.
Net effective rents for grade A office space in Wan Chai and Causeway Bay during the second quarter averaged HK$55.20 per square foot per month, which was down 3 percent from the same period a year ago, according to a recent report from Cushman & Wakefield.
Staying the Hong Kong Course
Spaces 8 Queen’s Road, which is located opposite 3 Pacific Place and within a 10-minute walk of the Wan Chai MTR station, had first been announced by Swire Properties in March, with the lease representing IWG’s fifth takeover of a space formerly booked by WeWork and one of its largest commitments in the city.
“We will continue to step up local expansion, in line with our ambitious growth plan of adding 1,000 locations to IWG’s global network this year,” MacAndrew said, adding in reference to the whole-building deal that, “Spaces at 8QRE is our third fully leased property in Hong Kong.”
The company had opened Spaces at Sun House in Sheung Wan, a 77,000 square foot, whole-building facility in 2019, and the company’s Spaces Hennessy Road takes up the entire 12-storey Hang Seng Wanchai building.
8QRE will be the firm’s third-largest location behind Spaces at Sun House and a 75,000 square foot centre operated under its high-end Signature brand in Wharf’s Gateway tower in Tsim Sha Tsui.
With office landlords becoming more flexible in their negotiations with tenants, including flexible office providers, some of IWG’s rivals have also been taking up more space, with The Executive Centre – an upscale flexible office space provider based in Hong Kong – having announced in November the opening of its 11th outlet at AIA Central, two MTR stations west of Wan Chai.