The global economy is showing sure signs of slowing down. Many corporates are starting to come under pressure to reduce costs. Occupancy cost is undoubtedly one of the highest expense items across all industries. The most logical step for any corporate looking to manage costs is to achieve rental savings (via rightsizing) and cut back on capex expenditure.
Corporates who have limits to capex are seriously considering flexible work spaces for a variety of reasons, however landlords are now fighting back with a counter strategy. Who will win?
The Growth of Corporate Co-working
The notion of working in a co-working office gained popularity in the last two years with a lot more awareness around co-working offices among corporates. The dramatic entry and extensive growth of co-working operators such as WeWork & JustCo has given corporates sufficient understanding of alternative solutions to corporates in space planning.
Even developers & landlords have jumped into the bandwagon with partnerships with co-working operators – CapitaLand tied up with The Work Project whilst City Development joined forces with Distrii to give corporates the option of flexible work spaces in a bid to retain occupancy levels.
Landlords have also created spaces modelled after the co-working spaces, creating their own branding of fitted, flexible office space. Examples of this trend include LendLease’s csuites and Guocoland’s upcoming Guoco Midtown, both of which cater to their tenants’ needs.
Weighing the Benefits
Corporates who face limits to capex find co-working offices appealing. Other than the unique and attractive design of each and every centre, the spaces are fitted by the co-working operators rather than by their clients. Corporates can therefore be relieved of the burden of doing their own fit-out works. Also, with the flexibility and ability to customize and fit-out the space to every corporate’s needs, it is no wonder that the co-working operators are seeing higher demand now as compared to two to three years ago.
Corporates are increasingly recognizing the fact that co-working offices help them to scale up or down with ease, as compared to a traditional lease. The flexibility in the lease term makes co-working more attractive, especially so when corporates need to manage headcount growth or reduction. Some MNCs have been housing a small percentage of their total headcount in co-working offices as a flexible solution.
Co-working spaces will continue to grow as the demand for such spaces by corporates continues to expand. With the ever changing needs and demands of corporates, it is important for co-working operators to think out of the box and create not just a flexible fitted solution but to curate an experience that allows corporates and their employees the joy of working for the company as a result of being located in a co-working environment.
Pushing Back
Already, there is some pressure from occupiers to opt for private offices over co-working spaces. It’s all good to have tech companies, start-ups and unicorns to opt for such spaces in a bid to attract talent, but as my colleague Christine Li pointed out in a recent article, co-working operators with a larger share of private offices is more likely to be profitable, pointing to a convergence of co-working and traditional fitted offices.
Traditional landlords need to be more creative in their rental offerings in order to be competitive. In a climate where corporates are facing capex constraints, landlords need to be proactive in offering tenant’s improvement allowance as an incentive to entice corporates to take up a direct lease in the building versus becoming a member in the co-working space.
As co-working operators consolidate, there is room for both landlords and co-working operators to co-exist rather than fight an all-out war as they focus on what drives their business in the first place – the corporate occupier. A great example comes from Singapore, where in a recent transaction JUUL took up a lease at One Raffles Place South Tower which included management services. The landlord then engaged The Executive Centre (located within the development) to provide management services to JUUL.
To find out more about co-working trends in Asia Pacific, check out our recent report.
