Friday, December 21, 2018 - The tight Metro Manila office market, coupled with the emergence of a mobile workforce and firms’ drive to bring down operating costs and provide flexibility to their employees has given rise to another office sub-segment – flexible workspace. We see Manila’s flexible workspace stock expanding by at least 10% per annum from 2019 and 2021 due to the continued rise of micro, small, and medium enterprises (MSME); the influx of multinational corporations and outsourcing firms looking for plug-and-play offices; and the implementation of a set of policy reforms likely to improve the Philippines’ business climate. The segment’s growth should be supported by the improvement of the country’s information technology (IT) infrastructure, especially with the entry of a third telecommunications player which has committed itself to improving broadband connectivity nationwide.
Colliers International believes that flexible workspace is no longer a disruptor, nor a complementary sub-sector, to the office market. It has become a fundamental part of commercial real estate and a sector in its own right. In 3Q 2018, Colliers recorded flexible workspace supply at 339,000 sq metres, up 14% from the 298,000 sq metres (3.20 million sq ft) supply in 2017. This accounts for about 3.2% of the total Metro Manila office supply. We project this to reach 3.5% by end-2021.
Manila flexible workspace is divided into two categories: serviced and co-working; and hosted services.
Serviced office providers are the pioneers of flexible workspace and provide the most fundamental services such as redundant internet connection, secure uninterrupted power supplies, and option to rent desktop and laptop computers. This segment covers 71,000 sq metres or 21% of the total flexible workspace supply in Metro Manila. Major operators include Regus, Compass, Servcorp, and CEO Suite. We see these providers capturing new multinational companies (MNCs) that are expanding and conducting due diligence on the Metro Manila market. The government’s plan to relax foreign ownership restrictions on the construction and retail sectors should also encourage more foreign firms to set up office in the country. These companies are likely to start operating in the country through global serviced office providers.
Co-working space encourages tenants with similar interests to collaborate in a shared working environment. Targeting start-ups and freelancers, co-working space’s share to total flexible workspace stock is about 11% or around 38,000 sq metres. Among the co-working space providers in Manila are Clock-In and Launchpad. A key foreign co-working space operator is Common Ground with clients from various sectors including non-outsourcing companies providing marketing, logistics, finance and accounting firms.
The serviced and co-working sector grew by 30% annually in terms of stock from 2012 to 2017. Colliers expects this segment to grow at the same pace per year from 2019 to 2021 on the back of a rising number of start-ups, a growing share of millennials to the country’s workforce, and MNCs that seek to provide flexibility to their employees.
Hosted services on the other hand differentiate themselves by offering back office, non-core services such as information technology services, human resource staffing, and accounting. These additional services help tenants focus on their core businesses. Hosted services have the biggest share of flexible space on 231,000 sq metres (2.49 million sq ft), or 68%. Among the hosted service providers in Manila are Anthem Solutions, Sales Rain, and Figari. We expect this category’s growth to hinge on the continued influx of higher-value knowledge process outsourcing (KPO) firms that provide health information management (HIM), software engineering, and shared back office services that require plug-and-play offices. This sector rose by 15% per year in terms of stock from 2012 to 2017 and we project between 10% and 20% growth per annum over the next three years.
“Colliers believes that operators should cash in on the rising demand for flexible workspaces by partnering with developers to carve out co-working space within malls, residential condominiums, hotels, and worker dormitories that will be built within Metro Manila,” said Maricris Sarino-Joson, Colliers International Philippines director for office services.
Sarino-Joson added that, “Large flexible workspace operators should consider partnering with officials of second-tier cities that are viable outsourcing destinations. The project teams of outsourcing firms could start operating in co-working facilities in these cities where they could train college students that the BPOs could tap in the future. Among the most attractive second-tier cities for BPO operations are in Cebu, Bacolod, Iloilo, Clark in Pampanga, Laguna, and Davao.”
Tenants, on the other hand, should look for flexible workspaces that have an ecosystem that would allow occupants to collaborate with other firms.
“Companies with mobile and client-facing sales teams should also consider leasing out co-working space,” Sarino-Joson noted.
Colliers believes that flexible workspace occupiers looking for new and high-quality workspace should consider newer flexible workspace in major buildings in Ortigas, Makati CBD, Fort Bonifacio, and Rockwell Center.