Flexible workspace has gone mainstream in Asia Pacific, according to a new report by Colliers International which finds that 56 percent of Asia’s top 200 occupiers are already using flexible workspaces in some capacity, and 91 percent are considering using them.
The Flexible Workspace Outlook Report 2018 APAC, released today by the global leader in real estate services, dives into the key trends, threats and opportunities that are reshaping this rapidly evolving sector.
“Constant expansion and increasing competition are driving continued evolution of the flexible workspace sector as operators and landlords are integrating lifestyle, wellness and technology elements to differentiate their offerings in an increasingly crowded market, and occupier demands change,” commented Sam Harvey-Jones, Managing Director of Occupier Services Asia at Colliers International.
He added: “Our report shows that the number of deals involving 15 desks or more accounted for 48 percent of total flexible workspace transactions globally in 2017 – a 50 percent increase from 2016 (32 percent).”
Flexible Workspaces Come of Age in Asia
Within the span of just a few years, flexible working has evolved from an industry “disruptor” and a complementary sub-sector to the office market, into a fundamental part of the commercial real estate market and a sector in its own right.
We are now seeing multinational corporations taking up hundreds of desks for back-, mid- and even front-office functions, as occupiers demand flexibility to move away from long-term, fixed contracts. However, the average flexible workspace leasing term is now over 24 months, up from 12 months in 2013, as it becomes a competitor to traditional office space.
Nearly 5.4 million square feet (500,000 square metres) of space was leased in central business districts (CBDs) by flexible office operators across 13 Asia Pacific markets tracked by Colliers in 2017, representing almost 13 percent of the total office take-up in those CBDs. Total take-up by flexible office brands could rise to more than 6.8 million square feet (634,528 square metres) in 2018, Colliers forecasts.
The term “flexible workspace” encompasses both serviced offices and co-working, as the two models increasingly blur together.
Alternative Leading Models Emerge
“Most occupiers are already using or considering using flexible workspace in some capacity,” commented Jonathan Wright, Asia Pacific Head of Flexible Workspace Services at Colliers. “First- and second-tier cities in China as well as key emerging markets including Jakarta, Bangkok and several Indian cities could lead the future growth of flexible workspace in the Asia Pacific region.”
Flexible workspace operators and landlords with their own flexible workspace offerings are steadily building out their solutions to the point that some operators are transforming their locations into fully integrated lifestyle environments – boasting health, entertainment and other amenities.
Flexible workspace operators are also enabling innovative leasing models that reflect the increasingly dynamic and decentralised nature of business. In the “Flex and Core” model, pioneered by Colliers, a company combines a long-term lease with a traditional landlord for its core space (e.g. headquarters) and an agreement with a flexible workspace operator to accommodate sudden changes in headcount. This allows firms to deploy additional resources for projects or surges in demand with minimal overheads.
The “City Campus” model allows businesses to expand quickly across cities and international borders by supplementing a central location or headquarters with a digital platform that enables staff to access temporary hot desks or private offices across multiple flexible workspace locations.
Landlords, Operators Grapple with a Fast-Moving Market
“As the sector evolves, it is both supported by and under pressure from market trends, changing regulations and shifts in the composition and expectations of end-users,” Wright said. “How operators, landlords and occupiers respond to these realities will dictate the industry’s development going forward.”
Landlord interest in the sector is growing, presenting dedicated flexible workspace operators with a new source of competition. However, landlords trying to develop flexible workspace brands may sometimes lack the necessary economies of scale and geographical spread for multi-location enterprise occupiers.
Operators are hoping to cultivate a multinational client base, but as more large companies occupy large desk counts within flexible workspace locations, there is a fear that they will simply become repackaged office buildings with end users existing in silos, reducing their appeal and alienating the start-ups that create the buzz of a community and bring much-needed innovation.
“In terms of corporate occupiers, the opportunities here are obvious, but efforts should be made to cultivate a community through effective change management, which can help foster a vibrant tenant base and create stickiness – keeping landlords and operators at the leading edge of an evolving yet emerged sector,” Wright noted.
Lease Accountancy Changes Could Give Sector a Boost
New accounting standards that will require businesses to disclose their leasing commitments by 2019 could spur demand for flexible workspace as companies act to keep debt off their balance sheets – but the trade-offs may not be as straightforward as they initially appear.
Regulatory changes should have a positive impact on the flexible workspace sector, pushing multinational corporations to take less core space on traditional long-term leases and rely more on flexible spaces to deal with temporary headcount swings. In some cases, occupiers may also turn to flexible office operators for the amenities they may have previously self-delivered.
To learn more about The Flexible Workspace Outlook Report 2018, click here. This sponsored feature was contributed by Colliers International, Asia Pacific