Flexible Office Options on the Rise in Asia Sponsored Feature

Flexible workspace operators are on the rise.

In Hong Kong, as at June 2016, flexible workspace operators have committed to over 270,000 sq ft of office accommodation in this calendar year, and this is forecast to hit 475,000 sq ft by year end. By comparison, PRC companies committed to occupying approximately 400,000 sq ft of office space in Hong Kong during 2015, which was said to be the peak of new mainland leasing activity in the city.

Why Demand For Flexible Workspace is Growing

With the rise of the millennial workforce, which will make up an estimated 50 percent of the global workforce by 2020, and growth within the technology sector, in particular fintech, more tenants are seeking flexible, non-traditional solutions to meet the demands of their rapid growth. Conventional lease terms of 3 to 5 years, commonly offered in Asia, do not fit in line with the pace of their growth.

Additionally, we are now seeing established MNCs seek flexible solutions and shorter lease terms to address the challenges they face within the current economic climate. There is also the potential for significant impact on demand due to changes in lease accountancy standards, with Colliers expecting these changes to increase demand given that non-designated office space can now remain off of company balance sheets.

Gauging the Impact of Flexible Workspace Growth on Existing Providers

As the flexible workspace market grows, traditional serviced office operators are reviewing their strategies to ensure continued growth. Regus have recently acquired a coworking operator which they are rolling out globally, while some other providers are reported to be scaling back their expansion plans in Asia Pacific.

By contrast, New York-based WeWork, which just broke into the region with its first Asian venue having opened in Shanghai this month, are on a huge expansion across Asia and Singaporean operator JustGroup are looking to export their JustCo model across Asia and beyond.

What is the Impact of Growth in Flexible Workspace on Landlords?

The growing popularity of flexible workspace has both positive and negative impacts for commercial landlords.

WeWork has already become the biggest tenant in New York, and flexible workspace operators can be expected to take up large amounts of space in this region as well. In addition, most flexible workspace operators do not need to align lease commencements to the expiry of leases on existing premises, which creates pre-let opportunities.

Finally, flexible workspace operators often act as generators of traditional tenants for the landlord if the client or member of the operator moves on to permanent space.

One of the negatives sometimes cited regarind flexible workspace operators is their potential impact of on the tenant mix within a building. h\However, this factor can be turned into a positive for the project, provided that the builder operator chooses the flexible workspace provider that best compliments their existing range of occupiers.

Potential Benefits for End Users

Using Hong Kong as an example, there are now a range of flexible workspace concepts to select from.

A company can now choose from an operator such as Servcorp, who are considered the global market leader in premium flexible office accommodation, with traditional serviced office accommodation in Hong Kong’s most iconic development – Two IFC, to a local coworking operator, such as Campfire, offering space in a Grade B building in Kennedy Town.

In between these two extremes lay a range of international operators – WeWork which will soon open 90,000 sq ft of coworking and serviced office space in Tower 535 Causeway Bay, and Regus who offer a range of solutions across the market.

Tenants Now Have More Office Options

Start-ups often prefer the newer coworking arrangements, finding that while these spaces often cost more per square foot in rent than conventional office space, the reduction in capital expenditure and the flexibility offered (usually on month to month “memberships” rather than leases) is enough to off-set the higher rates. Co-working “members” are also often offered both face to face and web based networking opportunities facilitated by the operators, with some providers even offering online platforms to exchange services as well as access to VCs and experienced mentors.

MNCs are also increasingly attracted to coworking operators, with WeWork, which has already branched out beyond coworking, hosting the UK’s Guardian Newspaper in one of their New York centres. The office leasing startup also hosts American Express, among other large corporates.

Large financial institutions typically choose traditional serviced offices for branch or project offices. Servcorp estimate 60percent of their clients are MNCs – with UBS working from a Servcorp’s centre in Doha and, closer to home, Abu Dhabi Investment Authority, occupying Servcorp space in Two IFC.

Globally, and here in Hong Kong, we foresee demand for flexible workspace to continue to rise. Aside from the obvious benefits of limited capital expenditure and flexibility, the new lease accountancy standards mean that office accommodation that is non designated limits the initial impact on a company’s balance sheet.

This post is sponsored by Colliers International. Jonathan Wright is an Associate Director with the Office Services team at Colliers in Hong Kong, where he specialises in the delivery of landlord and tenant representation services in the city.