We foresee the scale of new openings to continue in an upward trajectory across APAC, particularly in China and mature established markets. Traditional serviced offices have typically occupied 10,000 to 20,000 sq. ft. with coworking spaces, initially, being smaller spaces housing start-ups. Now we are seeing WeWork, JustCo, The Working Capitol, URwork and naked Hub seek upwards of 40,000 sq. ft. for new centres and, as such, many of these now dwarf traditional serviced offices. Key examples have been WeWork taking 93,000 sq. ft. for one Hong Kong centre and over 200,000 sq. ft. in Seoul’s CBD, naked Hub continues to grow, their latest offering is a 130,000 sq. ft centre in Gubei, Shanghai, and finally JustCo has taken up 60,000 sq. ft. in Marina One, Singapore. 

The key for operators is to create a community which is attractive to multinational corporations, hence the scale. For example, should an operator only take 10,000 sq. ft. they are unable to appeal to a multinational corporation who may wish to place 100 desks in a flexible environment? Operators will often build a community of freelancers, start-ups, and SMEs before marketing their space to multinational corporations. 

Earlier in the report, we explored the appeal to multinational corporations of occupying flexible workspace – the increased take up of flexible workspace by multinational corporations puts large scale operators in direct competition with traditional landlords. However, landlords are ultimately occupier-led and occupiers are demanding this type of space. We may see landlords begin to partner with more established operators via joint ventures and profit share models as a direct way of monetising this trend. 

Often when a landlord attempts to run their own operations they fail commercially due to not only lacking the expertise to run the facility and nurture the community but also lacking the network of offices and the benefits which come with economies of scale for all manner of things from IT systems to marketing. Flexible workspace is about people and community, not just real estate, and this can be overlooked by landlords.

Due to the scale of established operators, the trend represents a great opportunity to re-position or add value to an under-performing asset, which should be particularly attractive to the landlords of Grade B buildings and, given the struggling retail sector, existing or former retail developments. CapitaLand’s recent deal with URwork to bring them in to some of their malls is a prime example of this. 

In order for Landlords to mitigate their risk we expect them to look at keeping flexible workspace below 100,000 sq. ft., or less than 30% of their buildings, whichever is lower, in order to maintain a balance within the asset and not risk overexposure to an unproven operator. Of course, this depends on the operator, and we would expect there to be a greater willingness from landlords to transact larger portions of their portfolio with established operators who have strong track records and funding.

With the sector growing at a pace and end user demand continuing in the same vein there are some estimates that around 30% or corporate real estate portfolios will be flexible workspace by 2030. With a range of operators now in the market, it is important that Landlords select a strategic fit for their asset and careful consideration should be given to this with the help of a third party advisor. The selection of the right operator and sound execution of a deal can often add value to the asset.

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