What does the future look like for co-working in Asia Pacific?

HO CHI MINH, 8 August 2018 - Asia Pacific's co-working scene isn't just attracting entrepreneurs and start-ups.

As collaboration and innovation rise up the corporate agenda, flexible workspace is becoming more of a priority. And landlords and developers are taking note.

JLL research found that flexible workspace – including both serviced offices and co-working – in Asia-Pacific surged 150 percent from 2014 to 2017. Meanwhile, the number of major flexible workplace operators more than doubled in the Asia Pacific region during the period.

The growing young entrepreneur community in Asia, notably Vietnam, brought with it a growing need for a co-working space where entrepreneurs can meet other aspiring entrepreneurs. Flexible space stock in HCM City has grown 108% from 2014 to 2017 and is predicted to continue due to government support for start-ups and SMEs. The city currently has 25 high-profile flexible space operators, with companies like Regus, G-Office, Toong and Dreamplex as the larger ones. 

For now, coworking operators are reining over the market. U.S.-based WeWork recently opened its flagship space in Southeast Asia. Singapore's sovereign wealth fund GIC has partnered with property firm Frasers to inject US$177 million into expanding JustCo across Japan, China, Australia and India.

Yet as the concept of flexible space becomes more established, landlords and developers are set to become more active.

Landlords jumping in

Landlords are already taking steps to bring their own flexible space offerings to the market. In Australia, local landlord Dexus has four centres, and plans to expand further. Hong Kong real estate giant, Swire, not only set up its own co-working space called Blueprint, it has also signed a deal with WeWork, as well as with The Great Room, a luxury co-working space operator.

Asia's major landlords dominate central business districts across the region. In Singapore, the 15 largest landlords control 75 percent of Grade A office buildings in the CBD while in Tokyo's Akasaka / Roppongi submarket, five landlords control almost 90 percent of Grade A office space.

"This gives these property owners considerably more leverage to determine the shape of the flexible space industry," says Christopher Clausen, Associate Director, Asia Pacific Research, at JLL. "Joint ventures or management contracts between landlords and flexible space operators are likely to become more common."

Developers too are making their own play to benefit from the growing demand for flexible space. For example, Lendlease's Paya Lebar Quarter development in Singapore will dedicate up to 15 percent of its office space to co-working while Capitaland is pursuing a similar strategy in China.

Consolidation in a fragmented market

With new entrants and flexible space models coming to the market, competition is only set to increase – in many cases leading to the survival of the biggest.

Clausen says the rapid growth of the flexible space sector in the region has led to heavily fragmented markets. "In Shanghai, for example, there are over 1,000 flexible space locations, many very small. We have already seen instances of individual operator failures, and mergers and acquisition activity," he adds.

In April, the largest global co-working business, WeWork, bought Chinese rival Naked Hub for a reported US$400 million. Another Chinese co-working force, Ucommune, took over smaller players Woo Space, Wedo Coworking and New Space.

More consolidation is on the cards, Clausen believes. "Large operators with a strong brand and facilities in multiple cities will be fine as will niche operators who can differentiate themselves. However, operators who fall in between may struggle and could be easy takeover targets."

Indeed, coworking operators are also upping their game, increasingly offering more than just desks and a coffee machine. WeWork's white label 'office space as a service – Powered by We' offers a variety of workplace services from fit-out and construction to tech-driven workplace strategy.

Beyond spaces

Although the flexible space market still accounts for less than 4 percent of Grade A office space across key Asia Pacific markets, further growth is on the cards for 2018, according to JLL's Spotting the opportunities: Flexible space in Asia Pacific report. Indeed, flexible space could account for as much as 30 percent of corporate portfolios by 2030.

And demand is also projected to keep on increasing as workplace culture across the region continues to evolve. As Chris Archibold, head of markets at JLL Singapore, notes: "Perhaps 60 to 70 percent of the office relocations JLL is involved in entail a very different fit-out to what we saw 5-10 years ago.

"Occupiers want more shared space, more facilities and a range of spaces – both private and shared – to suit different working needs. Companies are becoming more people-centric in order to retain talent and this is reflected in their workspaces."

Cities are also recognising the benefits that co-working and a more entrepreneurial and innovative culture could bring. In Hong Kong, the government is offering discounted co-working spaces to emerging industries. There are similar efforts across big cities in Southeast Asia, too.

In Vietnam, the change in work culture and business environment has made the country attractive to investors. Familiar faces in the industry such as Toong, Naked Hub and DreamPlex are looking expand flexible spaces of their business in economic giants like Ho Chi Minh, Ha Noi and Da Nang. According to Stephen Wyatt, Country Head, Vietnam, JLL said "Flexible space appeals to the younger generation not only for its open, well-designed space and active workplace environment, but also because it offers reduced costs in sharing fit-out expenses and making better use of resources. Flexible space offers a cheaper price and smaller, more flexible spaces suitable for young companies compared to traditional office leasing."

"New skills and business models are needed in the digital economy," concludes Clausen. "And many governments are encouraging creativity, collaboration and entrepreneurship as they take a pro-active step to move away from relying on manufacturing and old industries to give their economies a boost."