THE FLEXIBLE WORKSPACE

OUTLOOK REPORT

2019 | APAC

The next stage of flexible workspace

2019 will be a defining year for the flexible workspace sector in Asia Pacific, as it emerges from a period of impressive expansion to enter a new phase of maturity and evolution.

The growth of flexible workspace across the region may moderate from the heights reached in 2018, but the sector is still poised to make significant strides this year. With tenant experience becoming the cornerstone of commercial real estate strategy, operators will raise the bar for design and innovative amenities, transforming flexible workspaces into lifestyle destinations in their own right. More building owners will forge alliances with operators or create their own flexible workspace offerings, adding to the sector’s diversity and sophistication.

Markets such as Singapore, Hong Kong and Australia will continue to lead the charge, with the sector growing more entrenched in emerging markets like India, second and third tier Chinese cities and the Philippines. Local and international players will jostle to meet robust demand both from corporate occupiers integrating flexible workspace strategies into their portfolios, and small enterprises and startups seeking non-traditional office structures.

The global economy has entered a testing period and the flexible workspace sector will not be immune. Yet it is also clear that the rise of flexible workspace in Asia Pacific is rooted in enduring trends, which should ensure flexible workspace contributes to the vibrancy of the region’s commercial real estate markets throughout 2019 - and for years to come.

 

2019 Key Trends

 

> Amenities become part of the building fabric

Owners will move independently or work with flexible workspace operators to incorporate even more conveniences into commercial properties, aimed at elevating the tenant experience, from event spaces to wellness facilities and high-end food and beverage offerings.

> Design to scale new heights

Quality design will become a key focus for owners and flexible workspace operators as more multinationals prioritise staff retention, productivity and wellness over cost and space savings.

> Owners to play a more active role

More landlords will join the flexible workspace fray by either launching their own offerings or forming strategic partnerships with operators. This will enable building owners to combine flexible and core space in their portfolios, in line with occupier requirements.

> Products to push the boundaries

Operators will move beyond the standard options and leverage technology as they look to address a broader range of needs. Innovations like ‘pay as you go’ offices and built-to-order suites will provide occupiers with unprecedented levels of customisation.

> Consolidation set to pick up

As competition increases, local and regional operators are likely to team up to expand their areas of coverage and market share. International operators, meanwhile, will use mergers and acquisitions as a means to enter or bolster their presence in promising regional markets.

Market Overview

900,000 sq ft of new flexible workspace transacted in 2018

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Sentiment among Hong Kong’s major landlords towards the flexible workspace sector has improved significantly, while caution remains, most landlords are now open to leasing space to the right operators.

THE FLEXIBLE WORKSPACE SECTOR HAS MORE THAN TRIPLED SINCE 2015

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2018 was another year of record take-up for the region’s most mature flexible workspace market, with WeWork continuing its aggressive expansion and operators seeking out more opportunities in non-CBD fringe locations.

8 mergers by flexible workspace operators in 2018

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Though its expansion may slow in 2019, the flexible workspace sector will remain a key demand driver in the Beijing office market. Operators are still determined to open in sought-after districts and local landlords are creating offerings of their own.

Mydreamplus takes up 161,460 sq ft in OCG International Center

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With more well-established local and international operators exploring Chengdu’s market, occupiers have more options than ever - but the sector is expected to face challenges in 2019 as competition and costs rise.

Top three operators occupy over 545,800 sq ft

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The talent hub of China’s Pearl River Delta attracted rising interest from regional and international flexible workspace operators in 2018, though a tight vacancy rate is likely to check the sector’s growth until scheduled new supply comes online.

Flexible workspace supply jumps 14% in 2018

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Manila’s stock of flexible workspace is expected to continue to grow at least 10% annually for the next three years as small enterprises, multinationals and outsourcing firms all contribute to the demand for plug-and-play office solutions.

Flexible workspace market sees explosive 47% expansion

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A burst of activity by operators drove massive growth in the size of Sydney’s flexible workspace market and was matched by strong appetite from multinational occupiers, though low vacancy and a lack of new supply may put a damper on deal making this year.

Melbourne CBD vacancy rate stands at just 3.2%

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Limited supply did not prevent several flexible workspace operators, notably brands from Asia, from entering or expanding in Melbourne in 2018. More occupiers are making clear their preference for buildings with flexible workspace and landlords are responding to the call.

2.8% of CBD stock occupied by flexible workspace

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Healthy take-up by flexible workspace operators has helped push Brisbane’s vacancy rate to a five-year low, encouraging more operators to explore fringe markets beyond the CBD for new opportunities.

Smartworks takes up 278,000 sq ft in Global Technology Park

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Flexible workspace operators leased over 2 million sq. ft. of space in Bengaluru in 2018, a two-fold increase from the prior year, with activity concentrated in ‘micromarkets’ beyond the CBD. Demand is rising for managed spaces that combine traditional and flexible workspace features.

Flexible workspace operators account for 12% of gross office space absorption

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With operators adding to their portfolios and in some cases making acquisitions, the flexible workspace market is expected to continue to post strong growth in the near term, supported by demand from the IT, banking and consumer goods sectors.

WeWork opens 19 locations in Seoul since 2018 debut

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Both international and local flexible workspace operators are growing increasingly competitive and helping push down vacancy rates in Seoul’s office market, with occupier demand spreading beyond the tech-centric Gangnam submarket to other districts.

Flexible workspace leased area expands by over 150,000 sq FT in 2018

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2018 was notable for dedicated flexible workspace operators entering the Taipei market in force. The sector is poised to be a major demand driver for Grade A offices as more multinationals and technology firms seek out flexibility.

WeWork takes up 155,000 sq ft in Shibuya Scramble Square

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While Tokyo’s flexible workspace sector has got off to a relatively late start versus Asian peers, it is likely to be a greater focus for large landlords in the years to come. Market dynamics are expected to favour local players who are better placed to aggregate unused office supply.

16% of CBD Grade A stock occupied by flexible workspace

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2018 was a rollercoaster year, with cooperates emerging as the major demand source, and operators launching new services to catch the trend, including “HQ by We” (WeWork) and “HQ by Atlas” (Atlas).

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OUR INSIGHTS

THE FLEXIBLE WORKSPACE OUTLOOK REPORT 2018 | APAC

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Flexible workspace is no longer a disruptor, nor a complementary sub-sector to the office market. It is a fundamental part of the commercial real estate market and a sector in its own right, growing in size and importance to landlords and occupiers. The average flexible workspace leasing term is now over 24 months, up from 12 months in 2013, demonstrating that it is now competition to traditional office space.

 

THE FLEXIBLE WORKSPACE OUTLOOK REPORT 2017 | APAC

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2016 was the year flexible workspace took APAC by storm – from local coworking operators scaling rapidly in Beijing and Shanghai, to global juggernaut WeWork taking up large footprints in Shanghai, Hong Kong, Seoul and Sydney.

 

THE FLEXIBLE WORKSPACE OUTLOOK REPORT 2019 | EMEA

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The flexible workplace evolution continued to pick up speed in Europe over 2018, driven by a combination of factors the flexible structure of employment, the rise of the tech and gig economy, shifts in corporate culture and use of space, government support and accountancy changes, which all point to the direction of further growth.

 

THE FLEXIBLE WORKSPACE OUTLOOK REPORT 2019 | US

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Office leasing and tenancy dynamics are changing apace. Though coworking and flexible workspace still represents a relatively modest share of overall office occupancy, its footprint is rising and expanding rapidly. The impacts are being felt far beyond the walls of WeWork and Regus. Not only are there more providers— and more types of players—entering the arena, but flexible workspace features, such as shorter lease terms and greater service offerings, are being adopted even in more traditional landlord/tenant leasing.

 

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