Asia-Pacific is world leader in growth of flexible spaces: JLL

By JLL / EdgeProp | May 24, 2018 7:46 PM SGT
Demand for flexible offices — including coworking spaces and serviced offices — is growing faster in Asia-Pacific than anywhere else in the world, according to new research by real estate consultant JLL. The region’s stock of flexible floor space is increasing 35.7% a year compared with 25.7% in the US and 21.6% in Europe.
Across Asia-Pacific, the number of major flexible space operators has doubled, while flexible floor space has increased 150% between 2014 and 2017.
JLL expects flexible workspaces to constitute up to 30% of corporate commercial property portfolios worldwide. Although corporate adoption is still in its early days, there are certain factors that will continue to make this region a hotspot for co-working growth.
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Distrii at Republic Plaza (Picture: Samuel Isaac Chua/The Edge Singapore)
A key driver, according to JLL, is that governments are encouraging entrepreneurship to offset the slow growth in traditional industries such as manufacturing and are offering financial resources and backing for small companies, many of which are located in co-working-style spaces.
In Singapore, for example, the government has supported the development of flexible locations such as the JTC LaunchPad, which is home to a number of tech start-ups. Similarly, the New South Wales government backed the development of Sydney Startup Hub, a 17,000 sq m tech zone that caters for aspiring entrepreneurs. Meanwhile, reforms introduced by the Japanese government to improve work-life balance and productivity are also pushing domestic companies to explore more flexible ways of working.
Flexible workspace by major operators in Singapore has grown by 70% to 0.9 million sq ft at end-2017 from 0.5 million sq ft at end-2014, according to JLL. They have capitalised on the soft rental environment amid an influx of new supply to expand their footprint to grab market share. This is particularly the case in the CBD, where URA’s statistics showed close to four million sq ft of net new supply came on stream between 2014 and 2017.
Singapore CBD skyline
Including operators not tracked in the report, flexible space’s real estate footprint stood at an estimated 2.1 million sq ft as at end-2017, accounting for just 2.5% of islandwide office stock. While flexible space operators are still in an expansion mode, JLL expects their footprint to remain below 5% of islandwide office stock over the long term. However, including flexible space in corporate premises, that could increase to 30% by 2030.
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One of the factors for the growth in corporate demand is the ability to “plug-and-play” — to move in and out of an office space at short notice — as well as avoid complicated contract negotiations and fit-out work. JLL estimates that there are more than 70 third-party flexible space operators in Singapore today. The demand has kept pace with supply so far, but it is inevitable that there will be some consolidation in the market.
The well-funded regional and global players generally have stronger differentiation from both the geographic and product aspects. For the smaller players, it is vital to have a clear differentiation in their offering, otherwise they will compete on price, which will be challenging, given the multitude of options available to end-users, says JLL.
One of the private office suites that can seat at least 15 people (Picture: CDL and Distrii)
However, there remain some barriers to the widespread use of flexible space. Large corporates place a high value on retaining their brand identity and culture as well as the need to protect data and secure their IT infrastructure.
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In response to the growing demand for flexible workspace, landlords will continue to form joint ventures with co-working operators or create their own flexible space offerings to meet tenants’ needs. Meanwhile developers are adapting to what could be a new standard in property development, whereby flexible workspace will be an amenity as essential in a commercial building as F&B outlets or a gym.
Given the competitive dynamics of this new sector, consolidation is already happening, even among the biggest players. Looking ahead, JLL expects convergence to continue, with serviced office operators developing co-working brands and co-working brands targeting the clients of serviced operators in the market.