the flexible workspace outlook report 2020

COLLIERS INSIGHTS OCCUPIER SERVICES | APAC | JULY 2020

THE FLEXIBLE WORKSPACE OUTLOOK REPORT 2020APAC

THE WORK PROJECT | HONG KONGIn January, we predicted five flexible workspace trends to watch. These included enterprise outsourcing becoming mainstream; highly amenitised assets with best-in-class hospitality being ‘table stakes’ for any new office development; a continued boom in wellness offerings; a revival of suburban locations and further operator fragmentation. The impact of COVID-19 has accelerated these trends, while new trends – such as the integration of home as a place of work and the growing importance of the digital experience – have also emerged.

In this report, we explore occupier strategies to guide our enterprise clients as they adapt to the new reality. We also look at the models in which asset owners can deliver flexible workspace and what impact they have on valuation, together with our view on fragmentation and community in a post COVID-19 world.

Finally, we provide a look back at 2019 in our market-by-market snapshots with a data-driven summary of key cities, supplemented by an anecdotal review of 2019 and 2020 outlook from our in-house experts.

INTRODUCTION

JONATHAN WRIGHTDirector | Flexible Workspace Consulting I Asia

https://knowledge-leader.colliers.com/editor/flexible-workspace-five-trends-to-watch-in-2020/

SPACES | SEOUL

4 | | 5

OCCUPIER STRATEGIES

How occupiers can leverage the flexible workspace sector as part of their Corporate Real Estate (CRE) strategy

There are a number of component parts to flexible workspace and, when considering a corporate real estate strategy, occupiers should consider which components are best suited to their business needs and the level to which they require each component.

Ultimately, flexible workspace, in any capacity, is the outsourcing of real estate to an operator, whether that operator is the owner of the asset or a third-party flexible workspace operator. While this is typical for start-ups and SMEs, we expect current global market conditions to lead to a large-scale upswing in enterprise outsourcing.

In our recent survey, which reached over 4,000 occupiers, over 50% considered a flexible workspace solution to accommodate a longer-term office, which would be considered a core space with stable headcount projections, while almost half of respondents expected a minimum of 10% of their portfolio to be flexible within three years. Further cementing this shift, IWG, the world’s largest flexible workspace operator, confirmed that it has seen a 35% increase in demand for 50+ desks from Q1 2019 to Q1 2020.

ONE YEAR FROM NOW AND BEYOND, WHAT IS THE MOST SIGNIFICANT CHANGE THAT YOU ENVISION TO COMMON TRANSACTION STRUCTURES?

Source: Survey from Colliers Occupier Services Webinar

More flexibility built into traditional leases, without material change to length of lease term 44.5%

Shorter term for traditional leases 19.8%

More leasing vs. owning 3.0%

More “flexible workspace” agreements (coworking, services offices, etc.) 26.6%

A change not listed here 3.7%

No material change 2.4%

HOURLY / DAILY

Meeting Space > On-demand meetings

> Off sites / project planning

> Conference / event booking

MONTHLY / ANNUAL

Private Offices/Suites > Private office or suite

> Limited customisation

> Shared facilities

DAILY / MONTHLY

Traditional Coworking > Open plan working environment

> Dedicated or hot desks

> Shared facilities

ANNUAL+

Enterprise Solutions > Dedicated floors/offices

> Ability to customise

> Branding opportunities

SPEE

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HAR

EDCU

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MIS

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RIVA

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THE EXECUTIVE CENTRE | HONG KONG

| 7

The increased variety of products provided by flexible workspace operators has unlocked the ability for enterprises to actively manage their office space commitments. The traditional route of delivering office space is hampered by lead times in signing a lease, lengthy procurement processes for build outs and the need for capital which could be better used elsewhere. Working with a flexible workspace operator can enable CRE leads to manage their portfolio on an on-demand basis, easing friction.

Todd Liipfert Senior Development Director | The Executive Centre

WHAT ARE THE KEY DRIVERS FOR OUTSOURCING TO FLEXIBLE WORKSPACE

WORKSPACE OUTSOURCING

Outsourcing means an operator delivers all of the elements of the office acquisition and reduces administrative and operational burden of multi-supplier self delivery.

LEASEHOLD / SELF DELIVERY

Rent

Connectivity

Pantry

All other costs

OUTSOURCED

All inclusive costs

Connectivity

Pantry

Outsourcing workspace delivery can reduce capital expenditure and provide operational expense certainty. Reducing long term commitments reduces balance sheet liability and can improve the efficiency of capital.

FINANCIAL

When an organisation has unpredictable or dynamic headcount changes, flexible workspace can allow for agility to grow or contract.

AGILITY

Outsourcing the delivery of office space can create operational efficiencies. A single supplier is responsible for all workspace operations, this can deliver in house management and administrative efficiencies.

OPERATIONAL

Business-driven decisions, expansion into new territories and M&A integrations can all be triggers to use outsourced workspace.

TRANSFORMATIONAL

Flexible workspace is usually available on much shorter lead times, existing locations can be occupied immediately and new sites can, at times, be delivered quicker than self delivery due to procurement and supply chain efficiencies.

URGENCY

Operators of flexible workspace typically offer a range of amenities, facilities and services which may be hard to self deliver. This can improve the workplace environment for employees.

EMPLOYEE ENGAGEMENT

JUSTCO | SEOUL

8 | | 9

The component parts of flexible workspace can be deployed across a range of solutions. Here we break down these solutions, though for most occupiers we would expect a range of these solutions to apply.

> An occupier has a requirement to move a team, division or whole city office, typically 40–300 people.

> The occupier understands the full range of benefits traditional flexible workspace offers but doesn’t wish to share all facilities (e.g. pantry and meeting rooms) and wants more ownership and privacy.

Scenario

> A flexible workspace operator delivers a fully outsourced workspace, which includes all elements of launching and operating an office.

> The new facility is a customised and private environment that looks and feels like the occupier’s “own” space, delivered and managed by a third party.

> Occupiers have the ability to increase the flexibility of their portfolio through shorter commitments, mitigate capital expenditure and reduce balance sheet liability.

Opportunity

> This type of solution is now being delivered by specialist operators, traditional flexible workspace operators and, in some cases, directly by asset owners.

> Occupiers should be mindful of who is best placed to deliver and operate these environments, especially in new locations.

> Managed space is a grey area that bridges the gap between a lease and traditional flexible workspace, arguably allowing the occupier to have the best of both worlds.

Considerations

OCCUPIER MODELS MANAGED OFFICE

10 | | 11

FLEX & CORE REVERSE FLEX

> An occupier has a requirement for new premises with fluctuating and/or unpredictable headcount projections.

> Alternatively, an occupier wishes to outsource some component parts of their real estate, such as meeting space or a project team.

Scenario

> Identify an operator that will partner to enter an asset.

> Route 1 – The occupier commits to less space for their core requirement and the operator (or asset owner) launches a flexible workspace location in the same building.

> Route 2 – Full operator commitment – the occupier commits to “anchor” the new location and provides options for future expansion.

Opportunity

> The occupier has the benefit of long-term security for core operations and flexibility for growth.

> Predetermined expansion options within the flexible workspace demise (this can be whole floors) provide future growth security.

> The occupier has access to amenity spaces such as meeting, conferencing and events spaces, reducing core commitment and elevating the level of amenities.

> Buy in from the asset owner is needed to effectively execute.

Considerations

> An occupier has under utilised leasehold space.

> Traditional sub-letting or assignment strategies may not be possible due to market conditions.

> The occupier may want to reoccupy space in the future.

Scenario

> Reduce property costs by partnering with a flexible workspace operator to repurpose space into flexible workspace.

> Mitigate property expenses and even generate income.

> Operators can use different structures, including; assignment, sublease and management agreements.

Opportunity

> Asset owner consent may be required.

> There may be capex required to reconfigure.

Considerations

12 | | 13

DIGITAL CAMPUSHUB & SPOKE

> An occupier wants to reduce the reliance on a single headquarter building and implement a dispersed occupancy strategy.

Scenario

> Reduce real estate costs by shrinking HQ location and taking smaller hubs across a city, region or country. Typically, these would be in lower cost locations.

> Access talent and reduced labour costs in alternative geographical locations.

> Improve work/life balance of employees, reducing commuting times, increased quality of life and reduced living expenses.

> Maintain central flagship HQ, but reduce the amount of space.

Opportunity

> Ensuring the consistency of workspace quality across a distributed office portfolio.

> Operational and management considerations of a high number of locations.

> Outsourcing the delivery of these locations can reduce operational burden, improve workspace environment and lower lease liability.

Considerations

> An occupier has teams or individuals who work remotely or travel frequently. For example, employees who work from clients’ offices, on the road, from home or even cafes.

Scenario

> Membership to a network of drop-in spaces across a region.

> Access to professional workspaces can improve efficiency and productivity for remote workforce.

> Ability to reduce physical office portfolio.

> Reduced fixed property expenses; memberships are highly flexible.

Opportunity

> Employees need to have technology that enables them to work remotely.

> There are a variety of local and regional platforms in the market. However, Colliers has aggregated a range of operators to deliver the Colliers Mobility Pass, the only global platform. Learn more here.

Considerations

hhttps://www2.colliers.com/en/services/flexible-workspace

STOREY | LONDON

STOREY | LONDON

14 |

CONSIDERATIONS FOR ASSET OWNERS

The impact the type of operator agreement has on asset valuation.

The topic of flexible workspace valuation has been of interest to investors, asset owners, operators and debt providers alike, as the effects of COVID-19 have amplified the need for a clear and consistent approach to valuation, as the sector comes under scrutiny. Currently, there is a lack of hard data, a lack of evidence, and a lack of certainty regarding what form of agreement would best fit assets and operators, as well as drive value.

In late 2019, the RICS produced a paper entitled “Valuation of flexible workspace,” which most in the sector assumed would signpost the methodology and create a standard for the sector. While there is no formal methodology detailed by the RICS, the paper warned of the pitfalls of valuations and advised caution to those without any experience in the sector.

The ‘art’ of valuation is to seek to replicate the market and reflect the approach a potential investor would adopt when formulating their offer for an

asset. Therefore, valuation in this sector should be no different; just as an investor would not look at an asset making strong returns and offer based on the vacant possession value, neither should real estate professionals.

The most common questions we receive from our investor clients relate to the types of agreements in the market and how they impact their valuations, particularly when seeking debt. No conversation on the topic of agreements between asset owner and operator is ever the same. It is true that flexible workspace assets are generally operated using one of four delivery models, but outside of a lease it’s rare that we see the exact same deal structure more than once.

We have found that the ‘science’ of valuation is to reach a consensus between the investors, operators and debt providers in any deal. This is the case in each of the four main bases of value.

THE VANILLA LEASEThe covenant and surety offered by the tenant (operator) is the main factor that will impact valuation. There is generally evidence available; however, we would also factor in the variable nature of that tenant’s base of income, i.e. its members and what the strength of their covenant might be.

The three remaining bases should be assessed on the trading potential of the asset.

OWNER OPERATEDThe EBITDA of a well-run asset can be comfortably above 200% of the Market Rent of the asset on a vanilla lease basis. While there is limited evidence in the market, in early 2020 the sentiment was that there would be a high volume of M&A activity.

Assets that are owner operated could fundamentally be sold to an alternative operator as a going concern, or to an investor with a view to either self-delivery (which is rare) or inserting the same or an alternative operator on a management agreement.

The Market Rent element of EBITDA is generally ‘safe’ for a good quality asset that has reached operational maturity. It is the sustainability and future growth potential of the top slice element (the EBITDA over and above the Market Rent) that dictates the yield that should be applied to this element.

HYBRID LEASEThese agreements are becoming more popular. They generally involve a certain level of base rent (lets’ assume 50% of the Market Rent), with a percentage of turnover/EBITDA element on top. They are considered to provide security to the freeholder on the basis that half of the Market Rent is guaranteed.

This creates another layer to the top-slice method and, again, the yields adopted should reflect the historic trading levels or the trading potential of the asset. A good understanding of how these assets operate is key to determining the appropriate yields, as well as the quality of the asset itself.

We launched Storey – our flex offering – to keep close to our customers, serve a wider proportion of the market, build capability and capture an income premium. Embedding Storey into our campuses has allowed us to diversify the customer mix (e.g. attract fast growing scale ups) and expand our relationship with existing customers by unlocking the ability to deliver flex & core.

James Lowery Head of Storey | British Land

INDUSTRIOUS | NEW YORK

| 17

MANAGEMENT AGREEMENTSThese operational agreements offer the least security of income to the freeholder; however, they also offer the greatest potential returns of the non-self-delivered options. Again, valuing these agreements has to be done with regard to the sustainability of the income.

The main issue from a valuation perspective is the real lack of evidence in the market. Where deals have taken place, there has been limited visibility over the actual trading figures, and therefore the returns for the investor.

There is an argument that suggests, from an operational perspective, that management agreements are in fact favourable to a vanilla lease given that some flexible workspace operators have a history of terminating leases prior to natural expiry where the market has moved. This leaves an operational gap that would be less likely to happen under a management agreement.

Finally, some investors see value in having asset management opportunities from having a management agreement rather than a lease.

VALUATION ISSUESThere is an element of uncertainty regarding valuation during the period prior to the maturity of the operation for assets on both a Hybrid Lease and Management Agreement. We have found that the concern of many investors is that over this period any valuation for debt purposes will not truly reflect the future potential of the agreement.

In the hospitality sector, the Fair Maintainable Trading (FMT) level is typically adopted. Only with a detailed understanding of the operator’s projections and what a FMT can reasonably look like for that particular asset and location can one reflect the attributes of the agreement in place. This is an agreement that could result in strong returns for the investor, and therefore must be more valuable to an asset owner than having vacant possession.

Another issue surrounds the capex contribution. The investment has to be reflected in the valuation; however, this makes it even more important to demonstrate the future benefit to the asset owner. This can only be the case if the build-out is transferrable and another operator could trade successfully from the premises. Without the ability to assess the trading potential, the impact of the capex on the valuation would make these agreements unviable unless the assets reach maturity on day one, which is unrealistic.

When a hybrid lease or management agreement is in place, an investor is unlikely to view this as held with vacant possession, so why should a valuer? At the same time, an investor is not going to assume that these agreements alone are going to be more valuable (without proof of trading levels) than a vanilla lease. Where the flexible workspace element of an asset is only one part of a multi-let asset, an investor may well see the additional benefits to the rest of the building – this benefit is likely to materialise through a shortening of assumed letting/re-letting periods as well as tenant retention. While any valuer would not be able to quantify this benefit, it provides further weight to the argument that a more positive approach (rather than Vacant Possession) should be adopted.

This again is where the valuer must reflect the approach of an investor. It is then the duty of the valuer to demonstrate this to the debt provider in their report, thereby completing the triangle.

The challenge presented to valuers by the emergence of such a diverse range of deal structures and assets is still significant; however, having an understanding of how mature flexible workspace assets operate and generate income is vital to analysing them as an investment. The Colliers Flex Office Rating System enables us to plot the underlying asset quality and helps determine the potential sustainability of the existing or projected cash flows. While there is limited direct evidence available in the market, it is then up to the valuer to utilise their experience to ensure their adopted approach is one that would be reflected by a purchaser in the market, and considers the risk and returns that are achievable. This is a fundamental principle that is frequently forgotten.

Management agreements place the operator on the same side of the table as the asset owner. This enables us to unlock a greater range solutions for occupiers and a more holistic approach to optimising asset values for the asset owner. It’s why Industrious hasn’t signed a lease since 2017.

Jamie Hodari CEO | Industrious

HUB | MELBOURNE THEDESK | HONG KONG

COMMUNITY IN A POST COVID-19 WORLD

FRAGMENTATION

Over the last five years, WeWork – fueled by Soft Bank’s Vision Fund – grew exponentially, taking up market share across regions. Now, however, WeWork has started to hand back space in some markets, creating something of a power vacuum that will lead to a fragmentation of operator market share.

For example, in the Hong Kong and Singapore markets, WeWork accounted for circa 50% of the operator take-up in 2019. However, in 2020 they are likely to take-up no new space in Singapore, while in Hong Kong they are set to hand back approximately 500,000 sq ft, drastically changing market dynamics.

The effects of COVID-19 will likely accelerate this fragmentation trend, with a clear need for local market operating knowledge; however, where operators do enter new markets, they must take the opportunity to blend their expertise in their home markets with strategic local hires to deliver a compelling offering.

The various levels of lockdown around the world have restricted access to the office and have consequently limited social interaction. Social relationships are a major contributor to employee well-being. Prior to COVID-19, most employees’ social interactions were with colleagues, either in organised or informal after-work settings. Without the social elements of work, the opportunities to collaborate, innovate and learn are also limited.

In a post COVID-19 world, it is critical for flexible workspace operators to cultivate community by promoting wellness programs and thoughtful learning opportunities, and to foster a collaborative environment that encourages connection. We forecast that occupiers will seek out operators that can deliver holistic offerings and manage their employees in a safe environment, and that this will be a driver for greater levels of enterprise outsourcing.

The distinct variations from country to country in their government responses, social behaviours, economic performance and extent of their health crisis has allowed local operators with a specialised knowledge of their market to tailor solutions to their customers. The ‘flight to quality’ often seen in a downturn has also become a ‘flight to safety’.

Brad Krauskopf CEO & Founder | Hub Australia

Coworking was built on the notion of community. As a sector, it is critical we don’t lose sight of this. Our members need this more than ever and we are working to deliver online and offline community to the market.

Dr. Richard Claydon CEO roundPegz@theDesk | theDesk

MARKET SNAPSHOT

125

233

93

27

50

151

51

130

46

493

110

124

24

32

79

13

$953

$394

$246

$643

$455

$199

$650 $508

$217

$590

$326

$321

$420

$186

$85

$21

$19

$16

$37

$110

$79

$61

$47

$107

$20

$25

$48

$36

$57

$33

HONG KONG

GUANGZHOU

TAPIEI

MANILA

BEIJING

CHENGDU

DELHI (NCR)

BENGALURU

SHANGHAI

SEOUL

TOKYO

SINGAPORE

JAKARTA

SYDNEY

BRISBANE

AUCKLAND

77$520$39

MELBOURNE

BENGALURU

JAKARTA

DELHI (NCR)

HONG KONG

GUANGZHOU

TOKYO

BRISBANE

BEIJING

TAIPEI

SYDNEY

MELBOURNE

SINGAPORE

CHENGDU

SEOUL

AUCKLAND

SHANGHAI

MANILA

$374$375

Flexible workspace centres

Average desk cost(USD/month)

Average rent Grade A(USD/sq ft/annum)

Flex as a % of Office Stock (Q1 2020)¹

Actual 2019

Operator Take Up (sq. ft.)¹

Forecast 2020Actual 2019

Net Grade A Office Take Up (sq. ft.)²

Forecast 2020

-150,000 -187,000

200,000 -116,000

291,000 4,413,000

97,000 4,128,000

-140,000 4,146,000

269,000 4,047,000

260,000 1,503,000

55,000 1,117,000

86,000 1,001,000

352,000 1,058,000

1,047,000

586,000

374,000 3,053,000

697,000 3,847,000

261,000 3,489,000

296,000 -514,000

228,000 -31,000

164,000 350,000

3,000 73,000

485,000 3,863,000

64,000 2,126,000

237,000 -886,000

110,000 751,000

54,000 -122,000

72,000 158,000

1,847,000

2,183,000

1,000,000

1,100,000

530,000 3,398,000

150,000 1,890,000

-86,000 3,175,000

266,000 438,000

776,000 1,192,000

7,122,000

9,458,000

6,620,000

14,950,000

20,800,000

3.0%

3.0%

2.0%

3.7%

4.0%

6.0%

3.0%

3.2%

5.0%

3.0%

5.1%

3.9%

5.0%

4.0%

2.3%

2.8%

2.0%

Source: Colliers International1 Flexible workspace information relates to the CBD, except in the case of Bangalore, Beijing,

Chengdu and Delhi where it relates to the major business districts in these cities.2 Grade A office market information relates to the CBD in these cities.

T H E F L E X I B L E W O R K S PA C E O U T L O O K R E P O R T 2 0 2 0 | C O L L I E R S I N T E R N AT I O N A L T H E F L E X I B L E W O R K S PA C E O U T L O O K R E P O R T 2 0 2 0 | C O L L I E R S I N T E R N AT I O N A L22 23

2019 OVERVIEWBrisbane experienced strong growth in the flexible workspace sector in 2019, with the commitment of several new locations (including Spaces Riparian Plaza and WeWork Riverside Centre) as well as operator pre-commitment on space expected to be delivered over the next 2–3 years. The continued interest by operators in Grade A and Premium Grade locations has attracted substantial enquiry allowing operators to open their doors with above 50% occupancy. Landlords view flexible workspace as a benefit to their assets not only in attracting new occupiers but also allowing their existing occupier base to gain a level of comfort that they have the ability to expand for short term projects if required. With the resource sector also showing growth during 2019, assets with flexible workspace in situ are drawing the attention of large-scale occupiers.

2020 OUTLOOK: COVID-19 & BEYOND COVID-19’s effect has caused flexible workspace operators to see a slowing of enquiries, especially from small to medium-sized tenants who are a major user segment. In some instances, occupiers who might typically opt for a flexible workspace have moved to work from home for the time being. Many occupiers have viewed the optional and mandated working from home conditions as a success and as a result, they are looking to explore ways to optimise their workspaces by either consolidating into a smaller footprint, or alternating staff working from the office. Even larger institutional occupiers are considering whether they still require a significant footprint in terms of committed space. Currently, the Brisbane market is expected to shift further towards a tenant favourable market, with occupiers viewing flexible workspace as a financially viable option for their executive and essential staff.

As occupiers continue to reimagine their workspace requirements, flexible workspace operators may see an increase in demand. Given that asset owners are expected to be heavily focused not only on customer retention but also the attraction of new tenants, the deal terms being offered to secure office space will undoubtedly see the market remain fiercely competitive.

BRISBANE | AUSTRALIA MELBOURNE | AUSTRALIA

2019 OVERVIEWOccupier demand for flexible workspace remained robust throughout 2019; however, take-up of space from operators slowed in 2019 compared to the previous two years, as operators took a more cautious approach following WeWork’s unsuccessful IPO. Notably, there was some take-up recorded in fringe districts including Creative Cubes taking over space from Asahi Beverages in South Melbourne and Spaces anchoring the new 71 Gipps Street development in Collingwood.

While new take-up in 2019 was subdued, we saw several flexible workspace locations open from deals that were committed in previous years. This resulted in operators aggressively pricing in the form of rent-free and/or reduced membership fees to secure occupiers. Most flexible workspace occupier transactions that occurred were driven by short-term project space and swing space requirements.

2020 OUTLOOK: COVID-19 & BEYOND Due to COVID-19, staff in most companies are working from home, where possible, resulting in reduced demand for office space across the market. At present, occupiers are typically opting out of any short-term memberships until there is further clarity on return to work policies. In the longer term, we expect demand for flexible workspace to return; however, operators will need to plan and implement appropriate measures to ensure the safety of its occupiers.

From an operator growth perspective, we are expecting more operators to move towards a management agreement model to further align both operator and asset owner interests. For asset owners, such arrangements will be dependent on the covenant strength of the operator and the value added to the asset in terms of amenity.

Name District Buildings Size (sq ft)

Spaces CBD 80 Ann Street 64,583

WeWork CBD 260 Queen Street 50,924

WeWork CBD 123 Eagle Street 48,201

2019 MAJOR DEALS


JustCo Western Core 15 William Street 89,340

JustCo Western Core 447 Collins Street 50,795

Hub Australia Civic 180 Flinders Street 47,404

Creative Cubes South Melbourne 111 Cecil Street 40,744

Work Club Global Western Core 477 Collins Street 39,027

Spaces Collingwood 71 Gipps Street 37,000

2019 MAJOR DEALS

MARKET DATA

32Flexible workspace centres

$455Average desk cost(USD/month)

$36Average rent Grade A(USD/sq ft/annum)

-122,000 sq ft

Source: Colliers International. The information provided applies to the CBD only.

Operator take up forecast 2020

54,000 sq ft

Actual operator take up 2019

164,000 sq ft

Net Grade A office take up forecast 2020

Net Grade A office take up 2019

350,000 sq ft

MARKET DATA






110,000 sq ft


228,000 sq ft



-31,000 sq ft

751,000 sq ft

NICK DAVIES Associate Director

+61 7 3026 [email protected]

JUSTIN LAM Associate Director


mailto: [email protected]



SYDNEY | AUSTRALIA BEIJING | CHINA

2019 OVERVIEWSydney, home to Australia’s largest flexible workspace market, had a strong 2019, with aggregate vacancy well below 10% by the end of the year in the sector. Demand was led by multinational corporations that required customised solutions, which could be operated on a plug-and-play basis. Finance, insurance, technology and professional services occupiers led the demand for flexible workspace in 2019. Another significant demand segment included SME occupiers who prefer short-term leases and flexible workspace operators’ policy of not requiring bank guarantees.

2020 OUTLOOK: COVID-19 & BEYOND WeWork, IWG and Victory are some of the operators opening new locations in 2020. So far, we understand that these planned locations will continue despite COVID-19. Flexible workspace operators’ primary focus is now on tenant retention given low vacancy in existing locations. Operators have seen an influx in rent relief requests. Retention strategies include pausing memberships or offering short term rent reductions of 20–30%, while working with asset owners to facilitate these requests. The dedicated desks and hot desk segments of the sector have taken the biggest hit with a large portion of these users cancelling memberships, where they had the option to do so.

We have seen the usage of flexible workspace locations hit as low as 5% occupancy recently, given businesses are adhering to government restrictions and implementing work from home strategies; however, these should ease as occupiers return to work. Increased flexibility in incentives and terms are being offered to new enquires including adjustable start dates, increased rent-free periods, and reduced desks rates on three to six-month terms. We also expect to see some operators facing financial difficulties, especially those that are not well capitalised, in the current environment.

2019 OVERVIEWThere were eight mergers between flexible workspace operators in 2018. In 2019, we saw overall flexible workspace demand marginally decrease as compared to 2018. Additionally, WeWork’s failed IPO dampened fundraising initiatives for local operators in 2019.

2020 OUTLOOK: COVID-19 & BEYOND SMEs are a core demand segment for flexible workspace operators in Beijing. Due to COVID-19, this demand, particularly from new SME occupiers slowed down considerably in Q1 2020. Many existing occupiers either reduced their renewal lease durations or allowed them to expire naturally at the time of renewal in Q1 2020.

The overall Beijing office market recorded negative net absorption in Q1 2020. While we expect full-year 2020 net office space absorption to be positive, albeit slightly below 2019 levels, overall market vacancy should rise to 20%. From a flexible workspace operator’s perspective, the ongoing occupier shift towards remote working as well as the adoption of hub and spoke strategies should generate some demand for flexible workspace over the rest of the year. Nevertheless, we expect new take-up by flexible workspace operators to be limited and their focus to shift towards maximising occupancy at facilities that are operational now.


IWG Core 60 Martin Place 47,361

JustCo Core 60 Margaret Street 26,910

Hub Australia Core 31 Alfred Street 25,207

Victory Offices Midtown 85 Castlereagh Street 13,333

Victory Offices Midtown 85 Castlereagh Street 11,718

2019 MAJOR DEALS


WeWork Wangjing Parkview Place 108,000

KR Space CBD HNA Building 54,000

My Dream Plus Wangjing East Bay International Centre

45,000

WeWork Dongcheng Longfu Building 42,000

My Dream Plus Dongcheng Oriental Plaza East side building

21,500

2019 MAJOR DEALS

MARKET DATA MARKET DATA







Source: Colliers International. The information provided applies to the CBD only. Source: Colliers International. The information provided applies to the CBD only.

Operator take up forecast 2020 Operator take up forecast 2020

237,000 sq ft 97,000 sq ft

Actual operator take up 2019 Actual operator take up 2019

296,000 sq ft 291,000 sq ft

Net Grade A office take up forecast 2020 Net Grade A office take up forecast 2020

Net Grade A office take up 2019 Net Grade A office take up 2019

-514,000 sq ft 4,413,000 sq ft

-886,000 sq ft 4,128,000 sq ft

ROWAN HUMPHREYS Director


CHARLES YAN Managing Director | North China





GUANGZHOU | CHINA

2019 OVERVIEWMost flexible workspace operators expanded as planned with major deals for 2019 completed during the first half of the year. In aggregate, Atlas, Left Nest, and IWG account for one-third of the flexible workspace in Grade A buildings in Guangzhou and as such are the major operators in the city. Overall office market vacancy rose marginally to 5.3% in 2019 from 4.5% in 2018. Nevertheless, we observed asset owners in the Pearl River New City (PRNC) district, which is part of the Guangzhou CBD and a prime office district, adopt flexible lease terms to attract occupiers, some of which were more competitive than the offerings from flexible workspace operators. Towards the end of 2019, some operators surrendered their space in the PRNC.

2020 OUTLOOK: COVID-19 & BEYOND COVID-19’s immediate impact has been on the SME sector, which has a significant share of the demand for flexible workspace in Guangzhou. As a result, SMEs sought reduced rents and though operators acquiesced, we observed vacancy rates rising in the flexible workspace sector in Q1 2020.

With no scope for inspections or viewings, office market leasing came to a halt due to the city-wide quarantines in Guangzhou in Q1 2020. This led to negative net office space absorption in the city for the first time since Q2 2012. Construction was also suspended during the lockdown. As a result, we estimate 1.4 million sq ft of new supply scheduled for 2020 will spill over into 2021. Our overall outlook for Guangzhou’s office market sees vacancy increasing to nearly 12% in 2020 and the supply overhang lifting vacancy to 14% in 2021. We expect rents to soften in 2020 before rebounding the following year. Occupiers are likely to adopt a flight to quality approach considering slowing rentals in the overall market.

From a flexible workspace perspective, we expect local real estate developers to continue to expand their own concepts cautiously or partner with operators, bringing asset ownership models to the market to mitigate downside risks in 2020. Overall, we expect net take-up by flexible workspace operators to be negative in 2020.


Yuejiang 368 Pazhou Guangzhou Daily Culture Centre

58,100

Cohesion PRNC International Metropolitan Plaza

45,200

Chirk Up Pazhou GZ The Place 16,100

SkyC Tianhe North-Sports Centre

CITIC Plaza 11,300

2019 MAJOR DEALS

1,503,000 sq ft

3,175,000 sq ft

MARKET DATA







-86,000 sq ft

260,000 sq ft




Distrii Huangpu Silver Court 98,430

Distrii Pudong Micro Electric Harbor 80,000

Distrii Jing An Daning Life Hub 69,000

MFG Huangpu K11 60,000

Atlas New Jing’an 1FS 50,000

JustCo Jing An LL Land 40,000

SHANGHAI | CHINA

2019 OVERVIEWTake-up from flexible workplace operators peaked in 2018. In 2019, while the local operators Distrii and Atlas were actively opening new locations, there was muted demand from international operators. However, the regional operator, JustCo, took-up a new location at LL Land Tower. Towards the end of 2019, WeWork paused expansion plans in Shanghai and started negotiations to exit leases in locations where it had not yet commenced operations.

2020 OUTLOOK: COVID-19 & BEYOND Approximately 27 million sq. ft. of new office space is set to be delivered in 2020 and full-year overall office market vacancy is projected to be 29% in Shanghai by end-2020. A further 14 million sq. ft. of new supply is expected to be delivered annually on average thereafter until 2024. Over 2020 we expect rents to drop by 6.1% in 2020, and considering the supply pipeline, we forecast rents to soften by approximately 1% annually for the next five years. Considering these market dynamics, we expect growth from flexible workspace operators to be negative, with new take-up attributable, for the most part, to partnerships or management agreements with asset owners.

2019 MAJOR DEALS

MARKET DATA







269,000 sq ft

-140,000 sq ft



4,146,000 sq ft

4,047,000 sq ft

LEON ZHU Senior Director

+86 21 [email protected]

MAY KUANG Associate Director+86 20 3819 3847

[email protected]




HONG KONG

2019 OVERVIEW2019 was a turbulent year for the flexible workspace sector in Hong Kong. In the first half of the year, WeWork doubled its footprint by adding approximately 500,000 sq ft of space before its failed IPO. The Chinese operator KR Space took four locations and then quickly retreated, handing three of these spaces back immediately, with new entrants, CEO Suite and Victory Offices, taking up two of these three. The local operator, Campfire, which in the previous year added three new locations began to retrench, handing back its campus in Hung Hom and its flagship facility in Causeway Bay.

Meanwhile, The Executive Centre reshuffled its portfolio, exiting Three Pacific Place and 28 Hennessy, at their natural lease expiries, while adding Two Pacific Place and PCCW Tower, continuing its longstanding relationship with Swire Properties. Elsewhere, Garage Society moved from Des Voeux Road Central to Queen’s Road Central, increasing its footprint. Activity in the second half of 2019 was largely subdued due to social unrest.

2020 OUTLOOK: COVID-19 & BEYOND 2020 is likely to be a challenging year for the office market in Hong Kong. The flexible workspace sector is under strain given that much of the space currently occupied by operators is on leases with passing rents above-market.

WeWork has, thus far, handed back circa 30% of its Hong Kong portfolio, having terminated its leases at Harbourside HQ, 8 Queen’s Road East, Hysan Place, The Gateway and two of the four floors at Hopewell Centre. With additional locations under review, WeWork could end 2020 as it started 2019; i.e. having around 500,000 sq ft of leased space. As many of these premises were fully built out, WeWork will have to absorb significant write-downs on its capital expenditure. This situation could portray both the company’s global business and specifically its operations across Greater China in a negative light.

It seems likely that WorkTech will hand back all of its Hong Kong locations in 2020, while IWG is handing back its China Resources and Harbour City premises, though it has added WeWork’s Hysan Place location to its portfolio and remains active in the market. The challenging business environment in Hong Kong means other operators may also return space and as a result we are likely to see negative operator take-up of circa 150,000 sq ft by year-end. However, we do expect some enterprise demand to buoy the sector in the second half of the year.


WeWork Tsim Sha Tsui The Gateway Sun Life Tower

147,000

WeWork Kowloon Bay The Quayside 100,000

WeWork Central H Code 80,000

WeWork Admiralty Generali Tower 62,000

WeWork Kowloon Bay Harbourside HQ (Octa Tower)

52,383

WeWork Wan Chai Hopewell Centre 46,731

CEO Suite Tsim Sha Tsui K11 Victoria Dockside 25,258

Victory Offices Central The Centre 23,628

The Executive Centre

Admiralty Two Pacific Place 22,060

UpperPoint North Point Park Commercial Centre

21,500

Compass Office Quarry Bay Chinachem Exchange Square

16,672

Fortune Business Service

Admiralty United Centre 10,245

2019 MAJOR DEALS

MARKET DATA




Source: Colliers International. The information provided applies to Hong Kong Island only.



-150,000 sq ft

266,000 sq ft



438,000 sq ft

-187,000 sq ft

CHENGDU | CHINA

2019 OVERVIEWWhen compared to 2018, Chengdu’s overall office market recorded an increase in rent as well as occupancy in 2019. As a result, flexible workspace operators who were actively expanding in 2017 and 2018 took up limited space during 2019. According to our research, flexible workspace operators are now present in 44% of Grade A office buildings within the CBD.

2020 OUTLOOK: COVID-19 & BEYOND Due to COVID-19, we expect the overall demand for office space in H1 2020 to be subdued. However, demand from the finance, TMT, health and infrastructure sectors looks relatively firm in the longer term. For H2, we expect demand to benefit from policy support, e.g. reduced financing costs and favourable tax breaks for negatively impacted enterprises. Overall in 2020, we expect vacancy to increase to nearly 21%, up from just under 17% in 2019. As a result, rents should fall and could prompt a flight to quality among occupiers.

Some of the challenges facing flexible workspace operators include passing the high cost of rentals from 2018 and 2019 to their occupiers and lower demand from the cost-sensitive SME sector, which has been a key source of demand. However, we expect occupier requirements for social distancing and split operations to encourage demand for flexible workspace. The challenge will be to reconfigure existing layouts to promote appropriate social distancing. Additionally, we have seen some SMEs in conventional office space planning to downsize or vacate their current premises. This represents an opportunity for flexible workspace operators to capture demand as swing space or reduced capital outlay options from this transition.


DMS South Renmin Road Raffles City 26,694


East Avenue IFS 27,986

2019 MAJOR DEALS

MARKET DATA




Source: Colliers International. The information provided applies to the major business districts only.


86,000 sq ft


55,000 sq ft



1,117,000 sq ft

1,001,000 sq ft

LIDIE LI Manager


SAYAKA MATSUMOTO Senior Associate Director





BENGALURU | INDIA DELHI (NCR) | INDIA

2019 OVERVIEWFlexible workspace accounts for approximately 4% of the overall office space stock in Bengaluru. When taken in isolation, the sector accounts for about 15% of the office stock within the CBD; i.e. flexible workspace accounts for a greater proportion of CBD stock. In 2019, flexible workspace operators leased approximately 2.2 million sq ft, accounting for around 15% of the gross office space take-up across the city. Operators continued their expansion, fuelled by demand from medium and large enterprises in the city. Much of the leasing by flexible workspace operators was in the SBD, followed by CBD across both Grade A and Grade B buildings. In 2019, Ascendas and Brigade Group entered the Bengaluru office market with their Bridge+ and BuzzWorks flexible workspace concepts, respectively as well.

2020 OUTLOOK: COVID-19 & BEYOND In Q1 2020, flexible workspace operators accounted for about 11% of the gross take-up, approximately 0.4 million sq ft of space in Bengaluru. With India’s lockdown going into effect on 25 March, COVID-19 did not have an immediate impact on the office market. Flexible workspace occupier demand was largely driven by local operators during Q1 2020. Due to the impact of COVID-19, the resultant lockdown and expectations around social distancing norms, we believe flexible workspace operators will slow their expansion over the next six months. We foresee some consolidation of operators taking place at the entity level. Operators which invest in workplace hygiene and sanitation as well as social distancing measures should see greater enquiries from small and medium enterprises, since flexible workspace could reduce occupiers’ upfront capital expenditure.

2019 OVERVIEWWe saw strong demand from flexible operators for space in 2019, accounting for nearly 18% of the gross take-up in the market. Noida accounted for 48% of flexible workspace operators’ take-up, followed by Gurgaon (38%), while the remainder was in Delhi. Flexible workspace operators saw their occupier demand come from both multinational corporations and start-ups alike. As expected, this demand came from the information technology-business process management; banking, financial services and investments; and fast-moving consumer goods (FMCG) sectors.

2020 OUTLOOK: COVID-19 & BEYOND In Q1 2020, flexible workspace operators accounted for 19% of the gross take-up in Delhi-NCR with approximately 340,000 sq ft, while the overall office market demand began to slow in Q2 due to India’s COVID-19 lockdown. In the long term, the fundamentals remain strong and demand is likely to be driven by IT-BPM (business process management) and consulting occupiers. However, we expect overall leasing activity to be muted as occupiers are reviewing their real estate portfolio requirements.


Indiqube SBD Prestige Lexington Tower

183,000

Simpliwork CBD Vaswani Centropolis 128,000

Smartworks Whitefield DSR Technocube 92,000

WeWork ORR Soul Space Arena 75,000

Oyo SBD Ranka Junction 75,000

2019 MAJOR DEALS


Smartworks Noida Plot #1&2, Sector 125 270,000

91springboard Noida The Riverside 100,000

GoWork Noida Logix TechnoPark 67,000

WeWork Gurgaon Vi-John Tower 60,000

Cowrks Gurgaon Unitech Commercial Tower

50,000

2019 MAJOR DEALS











1,000,000 sq ft 1,100,000 sq ft


2,183,000 sq ft 1,847,000 sq ft



14,950,000 sq ft 9,458,000 sq ft

20,800,000 sq ft 6,620,000 sq ft

ARPIT MEHROTRA Managing Director | South India


NEHA BHATI Associate Director+91 81 3069 9522

[email protected]




JAKARTA | INDONESIA TOKYO | JAPAN

2019 OVERVIEWNew space leased by flexible workspace operators was 65% lower in 2019 than in 2018. Much of this decline can be attributed to WeWork’s failed IPO, which created a negative perception in the market, especially among CBD asset owners. While international operators did not actively expand following WeWork’s failed IPO, there was some take-up from local operators.

2020 OUTLOOK: COVID-19 & BEYOND Jakarta’s start-ups and SMEs make up a significant portion of occupier flexible workspace demand, which dampened in the wake of COVID-19. Office relocation and expansion decisions from MNCs have also been postponed. With widespread business disruptions, flexible workspace occupiers which were due for renewal in Q1 2020 have either allowed their agreements to expire or have not renewed to their full terms. With GDP projected to be sluggish, we expect a 10% decline in office rent in 2020, followed by a recovery in 2021. However, we see five-year average rent growth at only 1.2%. In the meantime, as Jakarta has been under partial lockdown, we expect the supply pipeline to continue as planned over the next two years.

With remote working accounting for the bulk of business operations today, occupiers are now reviewing their office and workplace requirements. We believe this will continue to depress occupier demand for flexible workspace, increasing vacancy rates and putting downward pressure on rentals in the sector. Additionally, we expect some operators to terminate their head leases where possible, reducing the number of operational centres by the year-end. As in the case of other markets, flexible workspace operators in Jakarta may benefit from becoming temporary solutions and as swing space for occupiers. However, we expect WeWork’s ongoing performance to continue to have an impact on the wider sector.

2019 OVERVIEWA shift towards asset-light business models dominated the flexible workspace sector headlines in Japan during 2019. On April 15, IWG completed a cash sale of its entire business stake in Japan for JPY46.7 billion (USD437 million) to franchise its 130 flexible workspace location portfolio to a local conferencing operator, TKP. In partnership with Softbank, WeWork accelerated its local market expansion, securing various prominent new sites as late as the end of 2019. However, the market remains fragmented, limiting the overall flexible workspace inventory to 2.3% of total office stock, around 40% lower than the weighted average of its peer cities in the region. There has been growing occupier demand in fringe districts and operators are taking up space to satisfy this demand. Asset owners have repurposed unused retail, dining, and hotel space to flexible workspace, typically in middle-income residential districts. Additionally, a network of updated phone-booth office solutions (e.g., telecube) has re-emerged with an introduction of digital passports across major station facilities.

2020 OUTLOOK: COVID-19 & BEYOND The impact of COVID-19 has softened short-term demand in the Tokyo office market. However, in the long run we expect to see increased demand for office space to accommodate social distancing requirements in a post-pandemic world. Tokyo’s market dynamics continue to favour local landlords and developers as they are better-positioned to aggregate unused commercial office supply with few balance-sheet concerns. More enhanced service offerings have also justified their rent increases while retaining occupiers. Flexible workspace operators looking for market entry, or operators already in the market seeking growth opportunities need to position themselves as service providers to asset owners.

While net absorption from flexible workspace operators is likely to decline in 2020, we expect the overall operator take-up to remain solid at around 530,000 sq ft, reflecting large pre-commitment over 623,000 sq ft being secured before the COVID-19 outbreak. However, since no new deals have been announced after the outbreak, we forecast the future operator take-up to fall below 200,000 sq ft in 2021. Notable transactions already announced include WeWork at D Tower Nishi-Shinjuku, of around 50,000 sq ft and JustCo’s market entry in partnership with Daito-kentaku.


GoWork Sudirman Millennium Centennial Centre

64,583

WeWork Sudirman 18 Parc 53,820

CoHive Thamrin Plaza Bank Index 31,798

CoHive Mega Kuningan Menara Prima 27,863

CoHive Sudirman ANZ Tower (Atria Tower) 25,833

GoWork Satrio Menara Standard Chartered

21,528

JustCo Sudirman Intiland Tower 21,528

GoWork Satrio Menara Standard Chartered

13,993

2019 MAJOR DEALS


WeWork Kamiya-cho Kamiya-cho Trust Tower 165,100

WeWork Kanda Kanda Square 92,300

WeWork Ikebukuro Hareza Tower 85,400

WeWork Nishishinjuku D Tower Nishi-Shinjuku 53,375

JustCo & Daito-kentaku

Central Tokyo Four locations Confidential

2019 MAJOR DEALS








Source: Colliers International. The information provided applies to the CBD only. Source: Colliers International. The information provided applies to the CBD (central five wards) only.


64,000 sq ft 530,000 sq ft


261,000 sq ft 586,000 sq ft



3,489,000 sq ft 7,122,000 sq ft

2,126,000 sq ft 3,398,000 sq ft

SURYO WIBOWO Senior Associate Director


JOHN SUZUKI Head of Tenant Representation





SEOUL | KOREA

2019 OVERVIEWOccupier demand for flexible workspace has expanded beyond the IT-dominated Gangnam submarket to the Gangbuk area. For the past three years, the flexible workspace sector has been growing quickly due to the activity of the major flexible workspace operators WeWork, IWG, JustCo and TEC. In 2019, JustCo opened five new centres in Seoul and was the most active operator during the year. Local operators such as Fast Five and Spark Plus have also been actively expanding in the market.

2020 OUTLOOK: COVID-19 & BEYOND Local flexible workspace operators, such as Fast Five and Spark Plus, have continued to look for expansion opportunities, despite the impact of COVID-19. Fast Five has 23 locations and 15,000 members, with an occupancy of 97%, prompting the operator to plan an IPO later in the year.

Despite COVID-19, the demand for CBD offices in H1 2020 remained stable. The net absorption in the GBD and YBD decreased due to relocations out of the district. We expect leasing demand delayed by COVID-19 to materialise in H2 2020, as the pandemic subsides. However, we expect expansion from flexible workspace operators to be muted in 2020. In the immediate future, we believe demand for flexible workspace will come from occupiers seeking to fulfil business continuity requirements, rather than accommodating growth.

Over the rest of the year and beyond we believe flexible workspace operators will differentiate their product offerings and offer attractive alternatives to traditional office space.


JustCo CBD Seoul Finance Centre 80,700

JustCo CBD Concordian Building 71,000

Flag 1 CBD Yonsei Severance Building 66,000

Spark Plus CBD Centreplace 55,900

JustCo GBD Poba Gangnam Tower 25,200

The Smart Suites YBD IFC 32,300

2019 MAJOR DEALS

AUCKLAND | NEW ZEALAND

2019 OVERVIEWRecord low vacancy rates in Auckland’s office market coupled with strong occupier demand limited the ability of the flexible workspace sector to expand at the same rates experienced in previous years. However, a combination of smaller operators that entered the sector as well as some acquisition activity boosted the overall footprint. Prior to the end of 2019 WeWork announced that it would enter the Auckland CBD; however, it is yet to take occupation. Meanwhile, new flexible workspace of 3,000 sq ft was added in the CBD, while approximately 32,000 sq ft was added to the metropolitan region. By the end of 2019, there were 40 flexible workspaces across the Auckland region, occupying over 624,000 sq ft of office space, many running with occupancy rates of over 80%. The largest operator by space occupied – Generator – accounts for approximately 134,500 sq ft of space across the Auckland CBD, equivalent to almost one-quarter of Auckland’s total flexible workspace. For the Auckland region, the monthly cost for dedicated desk space in the CBD is USD 508 per desk.

2020 OUTLOOK: COVID-19 & BEYOND While it is still too early to predict the full implications of COVID-19 on the Auckland office market, we expect many occupiers will be reassessing their current leasing requirements and strategies, preparing for any changes that will need to be made as the situation evolves. Staff productivity and collaboration along with flexibility in space and lease-term length will likely become key requirements for new leasing activity in the current uncertain economic environment. This could assist the occupier demand for flexible workspaces.

While there is uncertainty on future growth rates in the flexible workspace sector, the refurbishment of existing and the development of new office premises expected in the next 18 months could provide approximately 162,500 sq ft of new flexible workspace to the Auckland CBD. This represents approximately 26% of the existing flexible workspace across all of Auckland.


Spaces Wynyard Quarter 155 Fanshawe Street 12,917

Generator Wynyard Quarter 10 Madden Street 10,764

2019 MAJOR DEALS










150,000 sq ft 72,000 sq ft


374,000 sq ft 3,000 sq ft



1,890,000 sq ft 158,000 sq ft

3,053,000 sq ft 73,000 sq ft

JAY CHO Director


ROB BIRD National Director+64 9 356 8803

[email protected]




SINGAPORE

2019 OVERVIEW2019 was yet another record year for Singapore in terms of flexible workspace operator take-up, with almost 800,000 sq ft of new space being leased, bringing the total flexible workspace stock in Singapore to 3.5 million sq ft. WeWork accounted for a quarter of the 2019 take-up, with its lease of 210,000 sq ft at 21 Collyer Quay, formerly HSBC’s Singapore HQ, being the marquee transaction of the year. Major operators JustCo, IWG, The Work Project, Arcc Spaces, The Executive Centre and The Great Room all remained active during 2019.

With many CBD Grade-A buildings incorporating some form of flexible workspace, some operators expanded within fringe and suburban districts. WeWork and Keppel Land’s Kloud concept opened locations in Alexandra, while Garage Society opened its Changi Airport location. Occupancy within flexible workspace locations remained robust throughout the year at circa 90% making Singapore one of the most mature flexible workspace markets in the Asia Pacific.

2020 OUTLOOK: COVID-19 & BEYOND So far in 2020, market activity has been subdued, with Singapore being in a COVID-19 circuit breaker since 7 April. Flexible workspace operators have had requests for rental waivers from occupiers during this period and we understand that the majority have shared government-provided tax rebates with their clients. We expect flexible workspace operators to play a key role in the return to work for many enterprises in Singapore, the scale of the sector creates an ability to offer a range of products to assist occupiers in executing their post-COVID-19 occupancy strategies. We expect flexible workspace operators to slowdown their pace of acquisition in 2020, with any new take-up being driven by partnerships or management agreements with asset owners.


WeWork CBD 21 Collyer Quay 210,000

csuites (Lendlease) City Fringe Paya Lebar Quarter 72,000

WeWork CBD Oxley@Raffles 71,000

WeWork City Fringe PSA Building 61,000

JustCo CBD Centrepoint 60,000

Bridge+ (CapitaLand) CBD 79 Robinson 56,000

JustCo City Fringe 51 Bras Basah Road 50,000

JustCo CBD Income@Raffles 50,000

JustCo CBD OCBC Centre East 45,000

The Great Room CBD Afro-Asia i-Mark 37,000

2019 MAJOR DEALS

MANILA | PHILIPPINES

2019 OVERVIEWDemand from SMEs as well as the influx of multinational corporations and outsourcing firms looking for plug-and-play offices led occupier demand for flexible workspace in Metro Manila in 2019. We expect these sectors to continue to lead occupier demand from now on.

2020 OUTLOOK: COVID-19 & BEYOND Metro Manila went into enhanced community quarantine (ECQ) on 15 March and though the lockdown ended on 31 May across the country, partial lockdowns exist, particularly in Manila. When the quarantine is fully lifted, we are likely to see occupiers implementing social distancing measures. We also expect to see split operations and the hub and spoke model deployed by occupiers in Manila. This could potentially fuel the demand for flexible workspace in the short-term.

We expect the overall Manila office market to see higher office vacancy in 2020 due to a slowdown in leasing activity. Economic analysts and the head of the Philippine Central Bank are expecting a recovery in 2021 and this should support the expansion of business activities and leasing transactions. We expect to see a greater emphasis on property management capabilities and asset owners to work with existing and potential tenants in providing flexible lease terms.

From a product perspective, we expect flexible workspace operators to incorporate better technology as well as improving meeting experience as they aim to differentiate themselves in the market. Major occupiers which have held off expansion so far in 2020 might consider flexible workspace as an immediate solution. We also expect flexible workspace operators to open facilities in the fringes of major business districts in Metro Manila, near residential areas to support a move towards the hub and spoke model. With the need to bolster business continuity plans, we are also likely to see flexible workspace operators expanding outside of Metro Manila and Luzon.


KMC Solutions Makati CBD Armstrong Corporate Centre

85,560

WeWork Fort Bonifacio World Commerce Place

82,077

KMC Solutions Fort Bonifacio Net Quad 55,409

KMC Solutions Ortigas CBD The Podium West Tower

53,641

WeWork Fort Bonifacio The Brilliance Centre 48,665

Clock In Makati CBD One Ayala Tower 1 45,654


Makati CBD RCBC Plaza Tower 2 19,072

Common Ground Ortigas CBD IBP Tower 17,493

2019 MAJOR DEALS










485,000 sq ft 200,000 sq ft


697,000 sq ft 776,000 sq ft



-116,000 sq ft

1,192,000 sq ft

3,863,000 sq ft

3,847,000 sq ft

KEVIN JARA Senior Manager


BASTIAAN VAN BEIJSTERVELDT Director




T H E F L E X I B L E W O R K S PA C E O U T L O O K R E P O R T 2 0 2 0 | C O L L I E R S I N T E R N AT I O N A L38

TAIPEI | TAIWAN

2019 OVERVIEWIn 2019 flexible workspace operators accounted for nearly 30% of the gross Grade A office take-up in Taipei. Occupiers using flexible workspace in 2019 were mainly multinational corporations, technology firms, and start-ups which wanted flexible lease terms as well as networking opportunities offered by the operators.

2020 OUTLOOK: COVID-19 & BEYOND Taipei’s office market experienced limited impact from COVID-19 in H1 2020, with demand remaining stable. However, we expect occupiers to postpone expansion and relocation activities resulting in slowing net absorption in H2. Similarly, there was little impact on the flexible workspace sector in H1 2020, and in H2 a shift to split-office operations may result in increased demand for flexible workspace from occupiers.

We expect to see the impact of COVID-19, on the Taipei office market, to come in the form of occupier rent relief requests, downsizing, postponements of expansion, and increasing numbers of unpaid leave workers. As a result, we expect a slowdown in the overall office market from H2 onwards, in turn leading to paused demand from flexible workspace operators for new locations until the space taken in recent years has matured.


WeWork Hsin Yi Exchange Square II 180,000

JustCo MS-TN Cathay Min Sheng Chien Kuo Building

68,400

TEC Hsin Yi Taipei 101 17,710

2019 MAJOR DEALS

MARKET DATA






0 sq ft


352,000 sq ft



1,047,000 sq ft

1,058,000 sq ft

OPERATOR

> Market Growth Strategy

> New Location Acquisition

> M&A> Fundraising

OCCUPIER

> Strategic Advisory> Portfolio Diagnostics> Transaction

Management> Creative Deal

Structuring

ASSET OWNER

> Strategic Advisory> Creative Positioning> Transaction

Management> Feasibility and

Valuation

Colliers International’s global flexible workspace consulting team works with all stakeholders in the sector. Our team of in-house experts delivers strategic advisory to operators, develops asset owners’ flexible workspace approaches, and unlocks opportunities with creative solutions for our occupier clients.

Our integrated approach provides us with a holistic perspective on the sector and our clients benefit from the team’s unparalleled track record and experience. Acting exclusively as an advisor, with no competing product, our independent market positioning allows us to provide uncompromised outcomes for our operator, asset owner and occupier clients.

FLEXIBLE WORKSPACE CONSULTING

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Contributors

TOM SLEIGH Director | Flexible Workspace Consulting | EMEA

FRANCESCO DE CAMILLIVice President | Flexible Workspace Consulting | Americas

SAMI SCHIAVIManager | Flexible Workspace Specialist | Australia

HARRY FLOODDirector | Valuation & Advisory Services | EMEA

For further information, please contact:

SAM HARVEY-JONESManaging Director | Occupier Services | Asia [email protected]

DOUG HENRYManaging Director | Occupier Services | Australia [email protected]

MICHAEL BOWENSExecutive Director | Regional Tenant Rep | Asia Pacific [email protected]

ANDREW HASKINSExecutive Director | Research | Asia [email protected]

JONATHAN WRIGHTDirector | Flexible Workspace Consulting | Asia+852 9020 9200 [email protected]

RAKESH KUNHIRAMANSenior Director | Research | Asia+65 6531 8569 [email protected]

Primary Authors

This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of Colliers International and/or its licensor(s). ©2020. All rights reserved.


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the flexible workspace outlook report 2020

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