Boom in flexible workspace sector paves the way for more collaborative and flexible way of work.
Organisations and their requirements are changing, whether through structural changes, including rapid adoption of digital technology, changing work culture and habits, a more demanding workforce, as well as evolving business needs call for both occupiers and landlords to rethink their leasing and real estate development strategies.
Increasingly, work is not so much a place to go to, but rather something people do – whenever and wherever. Today’s workforce is highly mobile and a large proportion of them favour a more collaborative and flexible way of work.
This trend has contributed to the boom in the flexible workspace sector – comprising serviced offices and coworking spaces – in the last few years, said Colliers International.
Agility is not just an industry buzzword, said Colliers. Adding, that amid a dynamic and uncertain global economic landscape, occupiers seek flexibility to directly correlate their headcount to real estate costs, shifting away from long-term, fixed contract. Colliers International’s survey of the top 200 occupiers in Asia found that 56% of them were already using flexible workspaces in some capacity, while 91% were considering using it.
A similar trend is observed in Singapore. According to Colliers Research’s Breaking New Ground report, flexible workspace stock in Singapore nearly tripled since 2015, with 2017 recording the steepest annual growth on record (+44% year-on-year).
The sector looks to be firmly on track for another 30% growth in total stock over 2018, given operators’ aggressive expansion plans. The flexible workspace industry has already steadily risen up the ranks to become one of the top five occupier sectors in the Singapore Central Business District (CBD) Premium and Grade A office market as of the first half of 2018.
Mr Duncan White, Head of Office Services at Colliers International, said, “We are positive on the growth of the industry, and view the increasing adoption of a ‘flex’ office component amongst businesses as a crucial catalyst for sustainable, long-term growth. That said, the tight vacancy in prime CBD buildings and exclusivity clauses inked between operators and landlords could potentially curtail the sector’s growth. One way around this is for operators to venture beyond the CBD to the city fringe and even retail properties. And that is exactly what we have observed in Singapore.”
Colliers said that in recent years, it has witnessed a growing number of multinational corporations seeking to complement their traditional ‘core’ leased office space with flexible workspace membership deals.
As the sector continues to evolve and grow, Colliers sees an opportunity for occupiers to consider flexible leasing strategies, especially against the backdrop of landlord-favourable conditions in Singapore’s office market.
Colliers added that for landlords and developers, it may be timely to review and re-position their assets given the fast-changing real estate requirements, and demand for flexibility amongst occupiers.
The current rapid growth phase of the flexible workspace sector presents an attractive opportunity for prospective users.
For commercial developments, flexible workspaces have evolved from a ‘nice to have’ option to a strategic essential, due to evolving occupier requirements. We recommend that landlords and developers proactively incorporate real estate approaches which best capture occupiers’ rising interest in flexible leasing models, whether managed via a third-party operator or a proprietary initiative.
> Consider the viability of alternative flexible leasing strategies, which combine traditional office leases with short-term lease tenures in flexible workspace centres. Benefits include: an opportunity to move away from long-term, fixed contracts, and the employee engagement upside associated with a community-focused, creative environment (refer to Colliers International’s 2018 APAC Flexible Workspace Outlook report for more details on new flexible leasing models)
> Keep an inventory of short-term options in anticipation of fluctuating headcount or abrupt expansionary requirements. Flexible workspace allow businesses to adjust headcount quickly and directly to real estate costs, for short commitment periods (between 6 and 24 months)
Partnering Flexible Workspace Operators:
> Consider partnering with a flexible workspace operator that complements each individual asset, as well as the overall portfolio
> Structure commercial lease terms suiting a preferred partnership approach, and which reflect the interests of all parties involved. For example, gross turnover rent structures are increasingly being considered in this market, while exclusivity clauses that primarily benefit operators are losing favour
Negotiation and Selection:
> Understand the unique amenity profile, pricing and positioning of each flexible workspace and the corresponding operator. This is key to optimal alignment of the real estate portfolio with strategic and tactical needs
> Exploit the abundance of flexible workspace supply, particularly the highly competitive small to mid-sized operator market segment, when negotiating the best terms for a commercial real estate portfolio
> Anticipate the effect of membership fee escalations given the relatively short membership tenures. For instance, agreements may specify fee escalations every 12-24 months upon renewal, which may compound very quickly
> Engage with existing and potential tenants to anticipate any product/amenity gap that can be effectively addressed via a suitable partnership with an external operator, or self-administered flexible workspace
> Understand the multitude of potential roles and depth that a flexible workspace can bring to the portfolio. Flexible workspace may act as auxiliary amenities for the tenant mix within the building, enhance the usable space value and overall appeal, or act as incubators or ‘swing spaces’ for start-up / new-to-market companies that may not have adequate scale to secure a viable office lease