New Lease Accounting Standards to Boost Flexible Workspace Solutions

Guest post by Andrew Chung, Compass Offices

Starting in 2019, MNCs and listed companies will need to start reporting the impact their workspaces have on their finances. This is a new accounting change announced recently by the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB). What this means is that though some companies have debt via workspace (offices) and real estate, their financial state isn’t transparent; however with this new standard, it will be.

The good news is short-term leases under 12 months are exempt from this new provision, which can lead many to companies to adopt flexible workspace solutions. This is a trend supporting an already hot industry. The Deskmag’s Global Coworking Survey suggests that by the end of the year, there will be over 10,000 co-working centers open.

How did this happen?

The market for office spaces was considered dire not too long ago. But with the rise of start-ups and entrepreneurships across the globe, investment in serviced offices that can serve as co-working spaces can apparently bring significant return for the financial industry. According to one recent study by CBRE, US office investment is at a seven-year high, hitting US$119 billion.

Numerous studies have forecast that shared workspace is the future. According to a 2014 PwC report entitled “The future of work: A journey to 2022,” workers have a huge desire to break away from traditional and cubicle offices, and instead work from anywhere they want, provided that the location has high speed internet access.

The study surveyed 10,000 workers in China, India, Germany, the US and the UK, as well as 500 human resources professionals from all over the world. One in five respondents said they wanted to become a “digital nomad”. Only 14 per cent of workers in the UK said they would want to remain in a traditional office environment in future. Based on the data, PwC projected that by 2022, 20 per cent of the workforce will be consisted of contractors or temporary workers.

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While significant return in investing shared offices have been reported in the West, the potential is also promising in Asia, considering a boom of startups and co-working spaces in the region.  According to a study conducted by The Chinese University of Hong Kong’s Centre for Entrepreneurship, in 2009 Hong Kong only had one co-working space. But in 2013, 16 new spaces opened within just 18 months.

In August, a survey by CBRE released showed that there are 100 co-working spaces in Tokyo, while Hong Kong, Singapore and Shanghai have around 40 to 60 co-working spaces each. But even these co-working spaces are not enough to meet the demands. In addition, Hong Kong has also seen a 46 per cent surge in the number of startups to 1,558 in 2015. By 2020, India is expected to host 11,000 startups.

Singapore has long established a reputation as being the startup center of Southeast Asia. Singapore saw a startup boom from 2005 to 2013, with an average of 2,000 startups launching their business each year during this period.

For landlords with underperforming, underutilised and lower efficiency office buildings, it is a much better option to lease the space to flexible workspace operators under a profit-sharing model than negotiating rental discounts with individual tenants or letting the space unoccupied. The Deskmag’s survey also suggests that 62 percent of flexible workspace owners plan to expand their spaces this year.

With potentially more demand from businesses, Asia will catch up on the development of flexible workspace. To run a successful sharing office space, a space itself is not sufficient; it is also important to create a community that is robust with support systems to help grow businesses.