THE FLEXIBLE WORKSPACE

OUTLOOK REPORT

2020 OUTLOOK

OCCUPIER STRATEGIES FOR THE NEW REALITY

In January, we predicted five flexible workspace trends to watch. These included enterprise outsourcing becoming mainstream; highly amenitised assets with best-in-class hospitality being ‘table stakes’ for any new office development; a continued boom in wellness offerings; and a revival of suburban locations and further operator fragmentation. The impact of COVID-19 has accelerated these trends, while new trends – such as the integration of home as a place of work and the growing importance of the digital experience – have also emerged.

For the full year in 2020, we expect overall demand for new space from flexible workspace operators in the region to be less than half the level that we recorded in 2019. Demand is likely to be muted across major markets such as Singapore, Australia and China, while in Hong Kong, we expect negative absorption by the end of the year. We expect Bangalore, Delhi-NCR, Tokyo and Manila to lead the demand for new space in 2020. While these are challenging times, we see flexible workspaces adapting to the changing business environment by differentiating their products, incorporating more technology into their offerings and working together with occupiers and landlords to produce mutually beneficial accommodation strategies.

 

APAC

Jonathan Wright

Jonathan.Wright@Colliers.com

Americas

Francesco De Camilli

Francesco.DeCamilli@Colliers.com

2019 Outlook

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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WeWork have already handed back several locations in 2020 and further locations are said to be under review. While IWG has handed back its China Resources and Harbour City premises it has added WeWork’s Hysan Place location to its portfolio and remains active in the market.

THE FLEXIBLE WORKSPACE SECTOR HAS MORE THAN TRIPLED SINCE 2015

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Flexible workspace operators are expected to play a key role in the return to work for many enterprises in Singapore and the scale of the sector presents an opportunity for operators to offer a range of products to assist occupiers in executing their occupancy strategies

8 mergers by flexible workspace operators in 2018

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The ongoing occupier shift towards remote working, as well as the adoption of hub and spoke strategies, should generate some demand for flexible workspace over the rest of the year.

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

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Occupier requirements for social distancing and split operations are expected to encourage demand for flexible workspace. Some SMEs are also planning to downsize or vacate their current premises, which should create an opportunity for flexible workspace operators to capture demand

Top three operators occupy over 545,800 sq ft

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Local real estate developers are expected to continue expanding their own concepts cautiously, or to partner with operators, bringing asset ownership models to the market to mitigate downside risks in 2020; however, net take-up by flexible workspace operators is likely to be negative in 2020.

Flexible workspace supply jumps 14% in 2018

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Flexible workspace operators are expected to incorporate better technology and improved meeting experiences as they aim to differentiate themselves in the market. Flexible workspace facilities are also expected to open in the fringes of major business districts in Metro Manila, near residential areas to support a move towards the hub and spoke model.

Flexible workspace market sees explosive 47% expansion

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Increased flexibility in incentives and terms are being offered to new enquires including adjustable start dates, increased rent-free periods, and reduced desk rates on three to six-month terms.

Melbourne CBD vacancy rate stands at just 3.2%

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At present, occupiers are typically opting out of any short-term memberships until there is further clarity on return-to-work policies; however, in the longer term, we expect demand for flexible workspace to return.

2.8% of CBD stock occupied by flexible workspace

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Brisbane is expected to shift further towards a tenant favourable market, with occupiers viewing flexible workspace as a financially viable option for their executive and essential staff. As occupiers continue to reimagine their workspace requirements, flexible workspace operators may see an increase in demand.

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

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Operators that invest in workplace hygiene and sanitation, as well as social distancing measures, should see greater enquiries from SMEs since flexible workspace can reduce occupiers’ upfront capital expenditure.

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

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Office market demand began to slow in Q2; however, in long term fundamentals remain strong and demand is likely to be driven by IT-BPM (business process management) and consulting occupiers.

​ ​ WeWork opens 19 locations in Seoul since 2018 debut

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In the immediate future, demand for flexible workspace will likely come from occupiers seeking to fulfill business continuity requirements, rather than accommodating growth.

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

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There was little impact on the flexible workspace sector in H1 2020, and in H2 a shift to split-office operations could result in increased demand for flexible workspace from occupiers.

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

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Tokyo’s market dynamics continue to favour local landlords and developers as they are better positioned to aggregate unused commercial office supply with few balance-sheet concerns.

​ 16% of CBD Grade A stock occupied by flexible workspace

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New take-up will mostly be attributable to partnerships or management agreements with asset owners.

JUNNY LEE

FOUNDER AND CEO OF THE WORK PROJECT

What are the key trends shaping the flexible workspace sector today? ​ Junny Lee, Founder and CEO of The Work Project takes a deep dive into the increasing importance of amenities, workspace design and operator-landlord partnerships in coworking across Asia Pacific. ​

Richard Paine

Managing Director of Paya Lebar Quarter at Lendlease

Richard Paine, Managing Director of Paya Lebar Quarter at Lendlease, gives us an inside look into how the company stays relevant and continues to deliver value to customers as their business needs and #coworking trends evolve. ​

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OUR INSIGHTS

THE FLEXIBLE WORKSPACE OUTLOOK REPORT 2019 | APAC

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2019 will see the flexible workspace sector evolve with new iterations that will continue to disrupt traditional views of what the sector is.

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 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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