The future is flexible
More than 1.2 million people are now working from coworking spaces worldwide. As coworking options expand across Australia, what can property owners do to create new value for customers?
Coworking is no longer limited to freelancers and tech start-ups. By the end of 2017, nearly 1.2 million people operated from coworking spaces worldwide – and this number is rising rapidly as large corporates embrace coworking as a space and cost saver, an ideas incubator and as a collaboration tool.
According to JLL research, 42 percent of the global space market is controlled by just three companies. IWG has more than 3,000 centres under the banners of Regus, Spaces and four other subsidiaries. WeWork, recently valued at $20 billion, has 171 spaces in 21 countries. And Australian company Servcorp has sold serviced office space since 1978.
The estimated 7,600 flexible space operators worldwide highlights the fragmented nature of the industry.
But JLL forecasts a “flexible space revolution”, which will reduce vacancy rates while bringing down the space requirement per person from 18 sqm today to 14 sqm.
JLL thinks coworking will overtake the traditional serviced office model by 2020 as more and more corporates jump on board.
“Corporates are increasingly turning to flexible and optimally-serviced workspaces. And it’s easy to see why, as shared spaces offer no fixed capital investment, can enhance collaboration and innovation, and are more flexible,” says JLL’s Victoria office leasing director Natarsha Logan.
“But coworking is just one part of the model, which is really about responding to the customers’ need for flexibility,” Logan adds.
“Though it is not always easy to categorise flexible space business models, our research shows we now have more coworking providers than serviced office providers in Melbourne’s CBD and fringe markets.
“Many of Melbourne’s serviced office providers are well established and have multiple locations and still account for approximately 52 per cent of all flexible space. Coworking providers are a rapidly growing sub-sector of the flexible space market,” Logan adds.
David Cannington, Investa’s head of research and strategy, has been “teasing out the depth of demand” for coworking. And his conclusion is clear. “It’s not a one-size-fits-all market.”
A variety of offerings are available to meet every market – from the standard model loved by start-ups and small businesses, to executive business lounges for the top end of town, and from digital dens for code cutters to university campus style spaces where socialising is central.
Cannington says the biggest opportunity for building owners is to see coworking as a strategy to help tenants manage overflow space.
“An institutional business needing to expand its team for a short-term project doesn’t want to take on a long-term lease. But they don’t need one desk – they need a whole floor. The coworking model can meet that need,” he says.
Interior architect Kyrstyan Mcleod, a senior associate with HASSELL, says there are several key ingredients to a productive coworking space.
The first is unique, centralised buildings close to public transport and amenities. Coworkers are looking for “high ceilings, ample natural light and airflow – essentially a space with unique qualities inherent in the architecture, something that you wouldn’t ordinarily experience if you were working in a traditional corporate-style office,” she says.
Connectivity is also central, Mcleod says.
“Well-designed coworking spaces create opportunities for serendipitous encounters, or the bump factor, that encourages the transfer of knowledge, creativity and cross-collaboration between members.”
A “welcoming host” who facilitates this collaboration through networking and social activities is fundamental to a successful coworking environment, Mcleod adds. This is about carefully curating the space and the members to maintain the right balance of diverse businesses.
Melbourne leads the coworking market
According to the most recent research from Knight Frank, the number of coworking spaces in Australia grew by 297 per cent between 2013 and 2017, to 309. More than 193,000 sqm of coworking space is now on offer in six cities – which is equivalent to 0.6 per cent of the nation’s office stock.
Melbourne has the largest concentration of coworking spaces with 49 per cent of space, followed by Sydney (38%), Adelaide (5%), Perth and Brisbane (4% each), and Canberra (0.3%).
Cannington says Melbourne now has around 180 operators in the city. “Coworking accounts for just one per cent of Melbourne’s total office stock, so it’s a small, although rapidly growing, footprint,” he says.
Just 25 per cent of Melbourne’s coworking is in the CBD, Cannington adds. Forty per cent is concentrated in the city fringe. “A lot of creative and specialist business services are looking for space, but not necessarily in the CBD,” he says.
Cannington says both structural and cyclical factors are driving the coworking trend.
“It’s partly about demographics. Millennials like flexibility and spaces to collaborate. And their lifestyles are more integrated with their working life, so they have different expectations of an office environment.”
There are cyclical factors at play as well.
“Unquestionably we can expect further growth, because the key driver for the Melbourne coworking market are property and specialist business services, such as engineers, architects and management consultants which make up a third of the office-based workforce. This sector of the economy has added around 40,000 jobs to the Melbourne workforce in the last year.”
While economic growth may be a boon for coworking, downturns aren’t bad news either.
“The Global Financial Crisis was actually positive for the coworking market, because a lot of businesses downsized, and were looking for smaller spaces with more flexibility, and at a lower price point. This fitted in with the coworking model beautifully,” Cannington adds.
But don’t be fooled into thinking coworking is necessarily cheaper than traditional office offerings. Hub Australia says coworking can be 25 per cent cheaper than a traditional lease, but Cannington says there are pros and cons of coworking from a cost point of view.
“The flexibility and affordability of coworking will suit some businesses that need a short-term, on-demand cost structure. But it’s like a gym membership. If you use the complete offering you get good value. But if you don’t, it can end up being an expensive option.”
Capitalising on the coworking boom
Cannington says coworking isn’t necessarily in competition with the existing office market.
“There is enough demand for coworking to be integrated into the current office offering.”
So, how can property companies capitalise on the coworking boom?
Look beyond the traditional coworking model, is Logan’s advice.
“Many corporate tenants, including banks, are embracing coworking and its flexibility. The banks, in particular, need to flex quickly and be agile. Anticipating where their businesses will be in a decade, or what their workforces will look like is rapidly changing, so how do they factor in the future when they sign a 10 or 15-year lease? For these customers, flexibility is appealing.
“The coworking sector is moving so rapidly but landlords need to respond in customer-centric ways. It’s about tapping into what tenants want. And that’s flexibility.”
“Just like end-of-trip facilities, flexible spaces are now becoming part of the standard offering. And it’s driven by the desire for flexibility.”