Getting flexible: The Rise of Coworking in Asia

Just like Elam, GCUC, said about six months ago: “Coworking in Asia, China specifically, is making coworking in the US look like it’s standing still.”

New, flexible co-working spaces are increasingly edging out the old guard of traditional serviced offices in Asia, according to a new report by commercial real-estate firm Colliers International.

Several reasons are suggested for the rise of co-working. The first is the growth of the millennial workforce, set to represent half of the global workforce by 2020. Another factor is growth in the technology sector. The report highlights Fintech as an industry seeking “flexible, non-traditional solutions to meet the demands of their rapid growth.”

“Conventional lease terms of 3 to 5 years, commonly offered in Asia, do not fit in line with the pace of their growth. Additionally, we are now seeing established MNCs seek flexible solutions and shorter lease terms to address the challenges they face within the current economic climate,” writes report author Jonathan Wright, Associate Director at Colliers.

The report also notes the advantages that co-working spaces offer businesses. Even though some may cost more per square foot in rent, they’re less of a hit to capex. Month-to-month flexibility is also important, particularly for startups. Then there’s the bonus of “face to face and web based networking opportunities, facilitated by the operators, that they would not normally have access to”.

China’s startup scene is currently buoyed by a 165% increase in venture capital deals and more dotcom activity. It has led to a demand for space, with both local operators springing up as well as global providers entering the market. Beijing remains the capital for startups, followed by Shanghai.

Hong Kong is also seeing major government investment in startups: HKD 2bn in the last budget. But the growth of office space lags mainland Chinese cities due to limited stock and a tighter grip on the market by traditional landlords.

Singapore is also ahead of Hong Kong when it comes to the tech sector, due to regulation that helps stimulate growth.

When it comes to the types of building used for office space, this varies. “Larger floor plates with natural light” are “often sought”. Serviced operators tend to look for buildings with a central core, while co-working operators prefer a side core.

“It very much depends on the operator in terms of building – Servcorp will usually only take AAA grade buildings in prime CBD locations, WeWork typically take a large amount of space across all districts but rarely in the AAA grade buildings in core CBD and the Regus portfolio spans all building classes and districts,” the report observes.

But a key criteria for operators is market rent or below, which is why the lower zones of building are often targeted.

Many Asian co-working space operators are also going hybrid: offering both shared space and private leased office space. Some are diversifying into incubator space in partnership with investors. There’s also a move by many large corporations – such as Accenture, People’s Bank of China and Commonwealth Bank of Australia – to provide incubator space.

Colliers predicts continued growth in popularity for co-working. Co-working centres are becoming an accepted business address for both multinational companies and startups across a variety of industries:

“The attraction of co-working spaces is that they operate with minimal vacancy in both a bull and bear market. In a bull market, start-ups need space and MNCs need expansion space. In a bear market lots of MNC’s seek flexibility, this enables operators to stabilise income. Landlords will ultimately be occupier led and many occupiers are demanding different things from their office space as the way space is used evolves. This is something landlords need to consider going forward. We expect to see landlords enter more joint ventures and partnerships with operators, which is a more direct way of monetising this trend.”

Image, Urban Station