Asian cities are catching up in offering co-working spaces with both local and foreign operators expanding their footprints aggressively.
HONG KONG – Unprecendented take-up
The Hong Kong market has moved quickly in 2016, the already record low vacancy in office space on Hong Kong Island at the turn of the year tightened further with unprecedented take-up from flexible workspace operators. WeWork successfully entered the market with a 93,000 sq. ft. transaction at Tower 535, swiftly followed by 59,000 sq. ft. in MassMutual Tower – both centres are now up and running and creating a buzz in the market.
Naked Hub entered the Hong Kong market in 2016, securing two sites – 60,000 sq. ft. in Sheung Wan and 12,000 sq. ft. in Soho. The Shanghai-based operator is aggressively seeking further sites with a view to going toe to toe with WeWork in the competitive Hong Kong market.
Regus has not yet brought their Spaces concept to Hong Kong but has developed their offering in the new Windsor House centre. However, they have exited their premium One IFC location, and this, coupled with The Executive Centre’s imminent exit from Hongkong Land’s Exchange Square, has reduced the footprint of flexible workspace in premium office accommodation. However, the global leader in premium serviced offices, Servcorp, has extended their leases in Two IFC and Hong Kong Club.
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Smaller local operators, including theDesk, Campfire, Metta and Garage Society have taken up space in Grade B Buildings, though these are all sub 8,000 sq. ft.
The growth in this sector has been fuelled by a diversification of end users. Typically, traditional serviced office end users were international firms taking branch offices in Hong Kong or using this space as swing space. However, growth in the start-up community, partly fuelled by government investment, coupled with occupiers looking for creative real estate solutions, has led to rapid take-up of desk space in flexible workspace centres across Hong Kong.
For 2017, we believe that HSBC’s take-up of almost 400 desks in WeWork’s Tower 535 will set a precedent for many more corporate occupiers to take up space within flexible workspace, not just for technology or innovation teams, but for generic mid-office functions. More MNCs will look at ways of utilising flexible workspace in order to manage escalating real estate costs.
SINGAPORE – Driven by start-ups
With a total of 47 co-working spaces and over 80 serviced offices operating in Singapore currently, flexible workspace operators occupy up to about 2.44% of the total available office stock in the CBD. We expect the number to grow up to 4% by the end of 2018. The conservative growth projection is attributed to a number of non-competing clauses where new flexible workspace operators are denied the opportunity to operate in certain buildings.
Nonetheless, we expect the supply of flexible workspace in the CBD to continue to grow moderately with an annual growth rate of 0.5–0.8% amidst continued demand from end users.
In terms of operator take-up, we have seen local operator JustCo introduce “super-sized” coworking in Singapore with two headline grabbing deals – 60,000 sq. ft. and 40,000 sq. ft. in Marina One and UIC Building respectively. Further, Regus has brought their Spaces concept to Singapore with 20,000 sq. ft. in Bugis, and Working Capitol has opened their second location in the city.
Traditionally in Singapore, flexible workspace has served as swing space for firms requiring a temporary premises to operate their business while waiting to take possession of their traditional office space. However, as a hub for innovation, many MNCs have used flexible workspace to house growth or pilot departments and initiative-driven business enterprises.
In recent years, Singapore has adopted a number of pro-tech start-up initiatives in a bid to promote entrepreneurship in the city state. These initiatives will appeal to tech start-ups to set up business in Singapore which in turn will create a new demand for flexible workspace. We observed that up to 81.6% of the spaces taken by flexible workspace operators in 2016 were reserved for coworking, the ideal type of space for start-ups.
The continued activity will give confidence to new flexible workspace operators entering the Singapore market and existing operators expanding their footprint. More MNCs will take advantage of flexible workspace to house, grow and develop their innovative business lines.
SHANGHAI – Aggressive Expension
The Shanghai office market recorded exponential growth in flexible workspace over 2016, supported by government policies which encouraged rapid growth of the technology sector and investment into start-ups. The growth in 2016 was a continuation of the 2015 growth, which flourished due to the uptake by P2P / local financial management companies in traditional office buildings. A clampdown on the P2P industry in early 2016 didn’t dampen the total net absorption for Grade A office space, which totalled 850,000 sq. ft.
We expect to see some merger and acquisition activity in the sector, particularly smaller independent operators being acquired by growing international operators. We also foresee co-living increasing its presence to complement the growing coworking market.
The flexible workspace sector recorded approximately 1,500,000 sq ft of net absorption in 2016. This is clear evidence of the strength of the sector in the Shanghai market.
Local coworking operator naked Hub opened 6 new sites and has aggressive plans for 2017 in Shanghai and other APAC markets.
WeWork’s Shanghai entry led them to open two sites, one of them being their Asia flagship at 696 Weihai Road in an 86,111 sq. ft. renovated warehouse historically occupied by the East India Trading Company.
URwork committed 236,805 sq. ft. of space to co-working. Despite the closure of a local operator AsianBiz, all other major operators continue to be on an expansion drive. The Executive Centre has secured leasing rights on Nanjing West Roads Taikoo Hui project, while Regus has continued their expansion with a commitment of 45,208 sq. ft. in the iconic Shanghai Tower.
Shanghai’s CBD Grade A office market is expected to record a further 11,840,290 sq. ft. of office space supply in 2017. This supply will outpace the market demand, resulting in a spike in the vacancy rate.
In 2017, continued weakened demand from foreign MNCs will add further downward pressure on net absorption in traditional office space. Meanwhile, MNCs such as WPP, AB-InBev, GoPro, Elsa Group and Discovery Channel have taken up flexible workplace solutions for some of their business units.
BEIJING – Big upside
Beijing has become a centre for flexible workspace during recent years due to two reasons: as the capital of China, Beijing is the hub for innovation with a large number of universities and start-ups; secondly, the local government offers tax benefits to operators in several districts including the Haidian District.
At present, Beijing’s flexible workspace market is dominated by local players, while international operators find it harder to penetrate the Beijing market. Major local operators include URwork, Wujie Space and SOHO 3Q, operating a combined area of over 1,500,000 sq. ft. with 19,000 desks.
To capture the increased demand from start-ups and to fill the vacant space in their properties, some large real estate developers have also created their own concepts, including OK Space by Sino-ocean Land, Vantone Commercial.
Center by Vantone and Office+ by BOE (the owner of Universal Business Park).
Located in the Haidian District with many top universities, Zhongguancun is known as China’s Silicon Valley and is the home to a large number of technology, media and IT companies. As a result, major operators have clustered in this area to satisfy the demand. Other hot spots include Wangjing and CBD.
Moving forward, both domestic and international operators should continue to look for space in Beijing to expand their business, generating opportunities for both landlords and tenants.
MANILA – Surging Demand
The surge of flexible office space in the Philippines has been evident in the last three years, characterised by a balanced demand from various business types. Flexible workspace in the local market is generally classified into three groups: serviced offices, hosted services and coworking. Serviced offices are preferred by MNCs looking to incubate temporarily while hosted services firms are preferred by business process outsourcing (BPO) companies where non-core processes such as IT, facilities management, HR staffing and back-office operations are provided. Lastly, coworking spaces are preferred by start-ups and freelancers.
By the end of 2016, there were over 50 flexible workspace centres occupying close to 2 mil sq ft in Metro Manila alone. In the hosted services space, Anthem Solutions is the major player, comprising half of the total stock. Among serviced offices, Regus remains the market leader with 25 sites nationwide, with over 300,000 sq. ft. Another major player in the local market is KMC Solutions with over 200,000 sq. ft. of office space in Metro Manila.
Other serviced office operators in Metro Manila include Sales Rain, Compass, Servcorp, E-Office, and Marimo. The sizes of these firms are at 50,000 sq. ft. or less. Interestingly, the coworking segment is also growing in popularity in Metro Manila with smaller firms such as Launchpad, CoLab, BitSpace, and VOffice.
Metro Manila shows a strong demand with average occupancy estimated at 80% with major providers having almost 100% occupancy in key sites.
Flexible workspace in Metro Manila caters to a wide range of tenants from BPO firms to law firms, software development, accounting, recruitment, freelancers and even Fortune 500 companies. Many of these firms use flexible workspace as incubators before doing full-blown expansions. Examples include Google, Ikea, Wells Fargo, HSBC, and J.P. Morgan.
We expect international operators to expand their footprints and to see new operators take up space in the market. Smaller operators will also thrive as demand for coworking spaces continues to grow.
BANGKOK – Continued Expansion
While the Bangkok office market saw continued growth in the past six years, average vacancy rates have consistently been below 10% over this period. As a result, office rents have grown significantly over the last three to four years. High rents in the core business districts of Bangkok are sometimes prohibitive to start-ups or SME businesses.
The main driver of growth in flexible workspace within Bangkok is start-ups and SME businesses that may not have a large enough head-count, or a sufficiently stable income stream to commit to a lease of traditional office space. In the local market, coworking space has recently been favoured over serviced offices.
In the short-term however, flexible workspace is unlikely to have a major impact on traditional office buildings and landlords in Thailand. However, its growing acceptance and take-up will impact landlords in the medium to long term. Flexible workspace is becoming an attractive alternative for a new generation of workers who value greater flexibility in the workplace, as well as proving particularly suitable for freelancers.
Over 2016, Regus was the most active operator, adding over 20,000 sq. ft. in AIA Capital and 10,000 sq. ft. in SJ Infinite to their portfolio, while local operator Glowfish took up 10,000 sq. ft. in Siam Square One.
Several flexible workspace operators in Thailand are continuing to expand their product into new locations and new formats, often in partnership models, especially in view of the large pipeline scheduled to be completed in the next 1–2 years. We can therefore expect awareness of flexible workspace to spread more widely in Bangkok.
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