Why Asia-Pacific’s flexible workspace market is outpacing its global counterparts

The flexible workspace market in the Asia-Pacific region is now the fastest growing in the world. Supply of flexible workspace centres – those incorporating co-working or serviced offices – in cities across the region has grown consistently above 15 per cent in the last 12 months with the only inhibitor to further growth being a lack of available space for further expansion.

As businesses face increasing challenges globally, many are turning to flexible workspace and alternative methods as a low-risk, cost-effective alternative to traditional office space. HSBC, Standard Chartered Bank, Datacom and American Express have for example, taken large numbers of desks outside traditional lease type arrangements across the region, and other businesses are quickly realising that flex provides a versatile and agile workspace in central locations.

There are now an estimated 8,600 centres across the Asia-Pacific. Given that the markets for this type of space are more mature in the US and Northern Europe, six of the largest city markets for flex space are now in Asia-Pacific. Growth in the region has been exponential and shows little sign of abating.

Why is Hongkong Land, the biggest landlord in Central, avoiding the co-working frenzy?

Of these city markets, Hong Kong currently has the largest supply of space in the region with an estimated 380 flex centres identified by The Instant Group. Despite being a mature market, growth levels continue to rise with an increase of 19 per cent in supply over the last year, almost double the growth in London.

The market in China has seen consolidation, as some of the largest operators have gained greater market share in multiple markets through acquisitions.

In April last year, the largest global co-working business WeWork, bought Chinese rival Naked Hub for a reported US$400 million. Another Chinese co-working operator, Ucommune (formerly known as UrWork), took over smaller players Woo Space, Wedo Coworking and New Space.

Consolidation [in China] has benefited end users as the operators have upped their game and increased their offering beyond just desks and coffee

This consolidation has benefited end users as the operators have upped their game and increased their offering beyond just desks and coffee. In addition, they have been pricing aggressively. All of this has combined to make flexible space attractive for companies of any size.

Other high-growth city markets in the region include Bangalore, Singapore, and Melbourne which also saw a 19 per cent increase in the supply of new centres.

Meanwhile, Singapore Headquartered Just Co has recently secured US$177 million to expand across Japan, China, Australia and India, and they are working to become Asia’s largest provider by 2020 with 100 centres across 13 countries.

The Executive Centre are also expanding aggressively with a predicted growth up to 40 per cent in 2019.

We are also seeing a rise in other flex solutions such as the managed office” or “space as a service” where a third-party company takes over the lease and delivers a turn-key space with all services and runs the office as an outsourced solution for a corporate client. This model of occupancy is gaining traction in Europe, the Middle East and Africa, and Asia-Pacific, as the traditional role of the landlord changes, and occupiers move away from conventional office leasing models.

China’s co-working operators squeezed by a lack of funding are shutting down

As investments in more traditional real estate sectors are providing lower returns, investors in the region are increasingly looking toward more niche, fast-growing areas, to maintain higher returns. A recent survey of these specialised areas found that 14 per cent of investors planned to invest in flexible office businesses, giving a very clear indication of the interest in this market and a key driver in the flex space revolution across the region.

The projected increase in conventional office rents across Asia-Pacific’s major cities will create an interesting opportunity for flexible spaces. As with many other cities around the world, it will lead to even more customers turning to flex solutions to try and mitigate the effects of rapidly rising lease costs, particularly in the short term.

But it will also have a negative impact, inhibiting the supply of new flex centres as the costs of occupancy increase for operators and their margins in prestigious locations are affected. This is already the case in Sydney’s central business district, for example, where vacancy rates are at all-time lows and the supply of space is so constrained that there is simply not enough availability to meet demand, particularly from corporate clients with larger space requirements.

Flex space will continue to develop in new, high-growth markets as it seeks to expand beyond the region’s main financial hubs. Conventional office rents are expected to rise by over 6 per cent this year as demand outstrips supply of space and, as we have seen elsewhere, flexible providers will need to compete to try and keep up with demand from companies of all shapes and sizes looking for alternatives to signing a long-term lease.

Sean Lynch is the managing director APAC, The Instant Group

This article Why Asia-Pacific’s flexible workspace market is outpacing its global counterparts first appeared on South China Morning Post

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