Is the sharing economy reshaping the office market?

By Tan Kok Keong / The Edge Property | May 4, 2016 10:45 AM SGT
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The sharing economy is reshaping the way we live, consume and use things and services. The consumption of office spaces has not been immune to that. As more and more individuals embark on their own entrepreneurship journey, demand for office space has taken on a different form. Traditionally, entrepreneurs have used the services of serviced offices. However, in developed markets, serviced offices are losing favour because of the increasing demand for coworking spaces. What are the key differences between them and is the latter a sustainable trend?
Coworking helps to maximise resources and therefore, revenue
Selling an office lifestyle
The concept of coworking spaces is defined by the interior design to the activities that are organised. Coworking spaces do offer users the traditional office utilities, such as access to printing services, photocopiers, meeting rooms, pantries, the mailing address, Internet services and a recep tion area. Typically, the services entrepreneurs’ need, such as legal, accounting, marketing, website development, e-commerce, design and so forth, are added. Such spaces provide a powerful sense of belonging, and a social and collaborative environment that is critical to entrepreneurs, many of whom spend thousands of dollars and lots of time networking, exchanging ideas, getting new leads and promo ting their businesses. With coworking spaces, they are no longer directly paying for meeting rooms, a pantry or printing rooms that are unused most of the time. This is how the sharing economy is triggering a mindset change, from ownership-based payment to access- based payment.
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Why more landlords are likely to get involved
Traditionally, landlords are hesitant to allow serviced office operators into their buildings as such offices were deemed to be their competitors. This mode of thinking is changing and landlords are starting to explore operating coworking spaces themselves. Essentially, such spaces help operators by maximising the use of resources (such as the mailing address, workstations, meeting rooms, printers and professional services) and therefore, revenue. The revenue model also helps to multiply the returns for operators, who essentially “oversell” the usage of office space and facilities. Typically, members will pay a base fee for a certain number of hours of access, or opt to pay different prices for a choice of seats — hot desking, fixed seat in open area or a dedicated room. They can buy more hours at a premium and pay for usage of facilities. In some instances, operators can make additional revenue by organising events and providing essential professional services.
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Is this a sustainable trend that could threaten the existing landlord-tenant regime in the use of office space? A look at how the co working space scene has developed in New York may help us understand whether the trend is sustainable.
Coworking spaces provide a powerful sense of belonging, and a social and collaborative environment that is critical to entrepreneurs.
Evolution of coworking space
The first coworking office space in the world opened in San Francisco in 2005, but it closed a year later. In the last four years, however, this trend has soared, in terms of locations and members. According to the 2015/16 global coworking survey by Deskmag (an online magazine about coworking), the number of such spaces shot up from 1,130 in 2011 to 7,800 last year. And, the number of members worldwide was 510,000 in 2015, compared with 151,000 in 2013 and 43,000 in 2011.
WeWork, one of the earlier adopters of co working, started its operation in New York in April 2011. Since then, it has grown into a US$16 billion ($22 billion) company with approximately 60 co working spaces in the US, London, Amsterdam and Tel Aviv. Today, the Big Apple has over 120 co working spaces and a total of 3.5 million sq ft dedicated to the purpose. Another brand that recently entered the market and has been growing fast is Neue House, a private community of leading entrepreneurs and creative teams whose members are offered experiences, work spaces, personalised services and opportunities that foster new ideas and important associations.
New players in the industry in New York
Recently, we co-organised a talk with Prodigy Network on crowdfunding and the evolution of commercial real estate in New York City.
According to Prodigy Network’s assessment of the coworking industry in the US, the number of members is expected to go from 510,000 in 2015 to 1.1 million in 2017, and the number of locations from 7,800 in 2015 to 12,700 in 2017.
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Prodigy Network is one of the forerunners of real estate crowdfunding in the US, having raised more than US$350 million of equity from thousands of small investors to develop innovative and disruptive real estate projects. Prodigy Network is tapping this market via its recently launched concept, known as The Assemblage. The Assemblage is a community of like-minded individuals who will be physically connected through the usage of diverse coworking locations throughout New York, combined with extended-stay apartments in some locations. Prodigy Network plans to launch this initiative by opening three locations in the city. The most recent project is called the Assemblage on 25th Street.
CapitaLand getting into the game
Looking at how demand for coworking space in New York has evolved, thematic-based coworking spaces could be the way to go. As has happened in the US, landlords and investors in Singapore could be increasingly tempted to join the game. On March 23, The Edge Property reported that CapitaLand has partnered Singapore’s co working space pioneer, Collective Works, to transform the 12th storey of its headquarters, Capital Tower, into a premium coworking space. This is part of Capita Land’s pilot initiative to test the waters for alternative workspaces.
As Singapore ventures into promoting entrepreneurship and more young people are willing to venture out on their own, it is plausible that demand for coworking spaces could evolve in the way that it has in New York City. Beyond the physical set-up, we think the social element that is promoted in the current thinking on coworking spaces could turn out to be more sustainable. In time to come, perhaps even larger corporations could increasingly use coworking spaces to provide flexibility in their office needs, to reduce the cost of renovation, office furniture and other related costs, to reduce cost on underutilised spaces (think unused meeting rooms, reception, pantry) and perhaps cater to an increasingly mobile workforce.
Observing the evolution of such demand in other markets, we believe coworking space is here to stay and the trend is likely to catch on in Singapore. Increasingly, landlords could be tempted to get into the game as the turnover per sq ft could potentially be much higher than normal office rent. Investors of small strata office spaces, in particular, might want to understand how this can impact the rent of small strata offices. What are the factors to consider when investing in such a business? Investors should understand the issues involved before dipping their toes into the water.
Tan Kok Keong is chief operating officer and cofounder of Fundplaces, a real estate crowdfunding platform. To find out more or join its education seminars, email kk.tan@fundplaces.com.
This article appeared in The Edge Property Pullout, Issue 726 (May 2, 2016) of The Edge Singapore.
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