Flexible Workspace – a review of our 2018 Outlook

January 10, 2019

 

As we enter 2019 we review some of the forecasts we made back in March 2018 in Colliers’ Flexible Workspace Outlook Report 2018 APAC and chart the progress and evolution in the sector.

 

We will explore our forecasts for 2019 next week as we build up to release our 2019 Outlook.

 

Holistic Offerings: Going all the way?

 

In 2018 we forecast that flexible workspace operators would continue to bring more offerings in to their locations – particularly in F&B and wellness. We have seen a continuation of this trend to an extent, but commercial constraints on the deal structures available in Asia have prevented this going as far as it could and has in other global regions. However, partnerships with landlords are beginning to happen.

 

An example of an operator successfully spinning off new business lines is Hong Kong-based Campfire who launched their co-education, co-living and co-retail concepts in 2018. It will be exciting to see some of these come together under one roof at Harbourfront Landmark in Hung Hom (Mingtiandi), Hong Kong, as well as similar offerings coming together in their Cecil Street location in Singapore. (Straits Times)

 

Holistic Offerings: Going all the way?Landlord Partnerships: Just the tip of the iceberg

 

One of the biggest threats and biggest opportunities for operators remains landlords. We forecast that more landlords would look to partner with operators, either on a building-by-building basis or at a strategic investment level, this is beginning to happen and we believe we are at the very tip of the iceberg on this trend.

 

Key partnership deals in 2018 included Frasers Property investing in JustCo and CapitaLand’s acquisition of a 50% stake in The Work Project. (Mingtiandi)

 

Major landlords are looking at the sector more closely than ever before and deciding on whether to self-perform flexible workspace and amenity spaces, acquire an operator, invest in or partner with an operator. This should lead to more creative deal structures, bringing about greater holistic offerings where occupiers will benefit – as real estate is ultimately about the occupier need, meeting their evolving demands is the key to success. We believe landlords should be going further than looking solely at the workspace element - placemaking and amenitisation will play big roles in the sector over 2019.

 

Corporate Real Estate: Booming take up

 

At Colliers we forecast a significant upswing in take up of flexible workspace by multinational corporations in 2018 and this turned out to be an understatement. WeWork state that “Enterprise Members” (occupiers with 1,000 employees or more) make up 45% of their member base in Singapore while The Executive Centre quote 70% of their members are multinational corporations across their portfolio.

 

Nearly every major occupier is including an element of flexible workspace in their real estate strategy and how operators choose to tap into and service this demand will determine growth in the sector.

 

The range of products and spaces being offered has increased exponentially and we have seen take up across the gamut of sectors, with the banking and finance sector being the fastest growing in APAC with Standard Chartered Bank and HSBC increasing their desk count with WeWork over 2018.

 

Technology: Slow despite the hype

 

The potential for technology to improve the sector is there, but progress hasn’t been as fast as we forecasted. Some of the technology being used is basic in nature, with most operators paying only lip service to it, with limited implementation. However, we have seen apps for booking meeting rooms and social interactions increase with some portfolio landlords taking this forward at a broader scale – in Hong Kong, Swire Properties and Hongkong Land are launching apps to connect occupiers in their portfolios, provide access to services and shared amenities.

 

We are excited to see the space-on-demand concept take a positive step forward with WeWork GO, allowing occupiers to use space in a pay-as-you-go format, by the minute.

 

Design: Below par, but raising the bar

 

There is still a long way to go in improving design in flexible workspace overall and in some cases this has actually gone backwards. Again, commercial constraints with respect to deal structures in Asia has resulted in many spaces feeling cramped and generally poor in terms of quality.

 

However, The Executive Centre, one of Asia’s more premium operators have opened 42 new locations in the past two years while The Work Project are in acquisition mode following their investment from CapitaLand, there are also other premium operators coming to the market which support our forecast of growth at the top end of the sector with multinational corporations seeking premium product.

 

With deal structures slowly changing, this should lead to positive steps in 2019, unlocking even more demand from multinationals as workspace design reaches parity or above against their own leased offices.

 

Co-living: Still sleeping?

 

We’ve seen no real progress in this part of the shared economy in Asia over 2018. Operators are still trying to find the best route to market and co-living continues to struggle to find a viable and valuable identity for the product, with some iterations being simply shared dorms while others are essentially a repackaged serviced apartment offer.

 

What’s next?

 

We are excited to bring you our fresh forecasts and flexible workspace trends on 16th January and the next edition of Colliers’ Flexible Workspace Outlook Report 2019 APAC will follow in early Q2.

 

Published: 10 January 2019

By: Jonathan Wright - Director of Flexible Workspace Services

Colliers Hong Kong

 

 

 

 

 

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