A report released by Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) reveals how changing requirements for real estate among regional tech companies is altering the demand dynamics for office space across Asia Pacific.
Mr Sam Harvey-Jones, Managing Director of Occupier Services | Asia, Colliers International, says, “Finance and insurance companies have traditionally been the major tenants of CBD offices in Asia, but that is now changing as an increasing number of tech firms – many of which are younger companies or startups – take up CBD space.”
This influx of technology tenants is bringing real change to office stock in areas across the region that have traditionally been dominated by tenants with more conservative outlooks. “Tech companies are looking to recruit talented younger staff who have very different mindsets. Millennials prefer working environments that are fun, creative and unstructured – and the market is changing to give them what they want,” he says.
Ms Anthea To (杜绍葶), Senior Associate Director of Research and Advisory, Colliers International, says, “Differentiation is a big driver for tech firms in Singapore. To create a point of difference and establish their brands, younger tech firms prefer to locate in the core CBD locations. More established firms generally feel that they have established a strong enough brand to attract and retain staff in a more decentralised location.”
On the basis that tech-sector tenants are usually growing much faster than those from mature industries, landlords are moving to provide more flexible workspaces and leasing arrangements that can accommodate hard-to-predict changes in employee headcount.
The report – Dealing with explosive growth – How Asia Pacific technology occupiers use real estate to harness opportunity
– examines five key issues relating to this trend:
1) Younger/older tech companies prefer different office locations
First generation tech firms (i.e., well-established, slower-growing players) have historically preferred decentralised sites, often in business parks, reflecting requirements for large spaces to conduct R&D. That remains the case today.
Meanwhile, younger and often smaller second and third generation firms are gravitating increasingly to CBDs, where better transport, retail, and entertainment facilities help attract talented staff. This shift is facilitated by the lower staff numbers and a reduced focus on software and hardware development, which translate to smaller space requirements compared to first generation firms. The situation is different again in high-growth markets, such as China and India, where tech companies congregate in the same districts irrespective of age or size. This is partly a result of government policies encouraging tech companies to co-locate, and this is driving strong growth in these areas.
2) Younger/older companies prefer different types of buildings
Generally speaking, newer tech companies are more likely to take up space in Grade A office buildings, while established firms opt for campus-style or business-park facilities. This again reflects larger companies’ need for more space versus smaller firms’ need to boost their profiles and attract talent.
3) Tech companies are driving workplace changes
The need for tech firms to attract younger, creative workforces is leading to the emergence of new workplace types – both in the CBDs and business parks – featuring open-plan offices, collaborative spaces, greater customisation, imaginative design, more ‘fun’, and a general lack of formality. With long hours now the norm, offices with on-site kitchens are also becoming popular.
4) Fast-growing headcounts lead to new leasing concepts
Flexible leases catering to unpredictable staffing requirements can be difficult to secure in markets with low vacancy rates, such as in Hong Kong. Renting larger spaces in anticipation of future growth is a possible strategy, but often proves wasteful. As a result, new leasing concepts are emerging to cater to fast-growing, younger tech companies. These include ‘activity-based’ working, ‘flexible’ spaces, and the rise of ‘co-working’ spaces provided by third-party landlords such as WeWork.
5) Green workspaces
While sustainability is a consideration for Asian tech companies, it is usually a secondary concern – companies occupying green space usually do so for a building’s overall quality rather than its environmental credentials.
For more trend spotting on the office market across Asia, please visit our Occupier Services Showcase Page at https://www.linkedin.com/company/asia-occupier-services.