The 'hidden value' in flexible offices

By Paul Norman - Monday, January 08, 2018 11:49

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Flexible workspace in the world’s leading global cities can offer a significant discount on the total costs of occupation in conventional office space, according to research from the Instant Group.

Instant said recent data from Cushman & Wakefield cites Hong Kong as the most expensive place to rent office space in the world. But to rent a desk in a co-working space works out almost three times cheaper in Hong Kong and almost two times less expensive in London, Instant argues.

According to the data, the "cost of occupying a desk in Hong Kong under a traditional lease arrangement is US$27,432 per year".

Instant writes: "This is nearly twice the amount of any other city in Asia and more than 18% more than in London, its nearest global competitor. Instant’s proprietary data, collated from more than 20 years of flexible workspace listings, shows that in comparison, it costs just US$7,607 per year to rent a desk in a co-working or serviced office space, offering businesses a discount of 73%."

In London the average cost of renting a flexible workspace is US$11,931 a year, more than half the cost (47% cheaper) than the total cost of US$22,631 for conventional space, Intant says.

It adds: "The number of flexible workspaces in London grew by 20% during 2017 with new centres opening up across the capital. This growth ensured that the market remained highly competitive, particularly compared to conventional space where vacancy rates are at an all-time low and space is at a premium."

John Duckworth, Managing Director of the Instant Group EMEA, said: “It is a commonly held misperception that flexible space, which offers shorter contract lengths and fully serviced offerings, can prove to be a more expensive proposition for a business. But both the market data and our experience with clients entering the local market, flex space is proving to be a viable, low-cost alternative.

“In London, we have one of the most mature markets for flexible workspace but it is still evolving rapidly and in the last two years in particular we have seen a real diversity in the type of companies using this space and a wider recognition of its ability to provide a viable long-term solution.”

Cushman & Wakefield’s research assesses occupancy costs per workstation for prime office space globally, taking into account all workspace costs. Instant said those costs are already included in flexible workspace fees per desk, so this allows a like for like comparison of workstation costs in conventional space and its flexible alternative.

Hong Kong is one of Asia’s more expensive locations for flexible space, even with supply of space growing by 19% in the last year, but it is still significantly cheaper than the markets of New York and London. However, for businesses entering the Hong Kong market, the total cost of occupancy operates at a large discount in flexible workspace to that of conventional office space.

Tokyo and Sydney also show a significant saving for flexible workspace compared to conventional space with costs 44% and 43% lower respectively.

Sean Lynch, Managing Director for Instant Asia Pacific, said: “Co-working has grown dynamically in the major cities across Asia-Pacific but the number of centres is still relatively low compared to London and New York. So we would anticipate further growth in supply in the coming year, which will keep costs low.

“Of course there are other mitigating factors such as location - and much of Hong Kong’s burgeoning flexible market is outside of Central – but when total office costs of occupancy are taken into account then the alternative appeal of flexible workspace is obvious.”

Instant said deal lengths in London are increasing for flexible space with 52% of deals in the capital now being for more than 12 months compared to 44 per cent 18 months ago. Deals in London for more than 50+ desks have also increased by more than a quarter year on year as larger corporates such as EY, Microsoft, Deloitte and Accenture look to the flexible workspace market for solutions.

Of the six APAC Tier 1 cities highlighted in the Cushman & Wakefield report the average conventional workstation rates all appeared higher than Instant data based on live information. Averages varied but in most cases the difference was above 25% in favour of the flexible option, Instant said.

Instants adds: "While flexibility is a large driver for young companies and those looking to expand quickly, the market is seeing a huge surge in activity within the flexible market from large corporate customers. Microsoft is a well-known user of flexible office solutions, utilising WeWork to house large numbers of staff in both New York and London but more recently they have reported to have obtained 500 spaces in WeWork’s Bengaluru office. This office in southern India has seen a number of high profile corporate customers including, Sales Force, Amazon and Facebook in recent years."

“With reported flexible office average workstation rates now proving competitive if not lower than conventional space a number of other advantages around flexible solutions are now starting to show their importance,” explained Sean Lynch. “Lower initial investments and forecastable costs allow a business to invest more heavily in its core areas and allow its teams to focus on the business.

“There are other factors to consider such as the appeal to employees of more flexible office arrangements and a variety of locations to choose from. This is particularly relevant in high growth, developing markets that are found in Asia where skilled, experienced labour is a valuable commodity and companies work hard to keep staff turnover low. It is also worth noting that there is less space per person in co-working space rather than conventional office design but this is dependent on the relevant space configuration. But thus far this does not seem to have impacted the co-working of flexible space model.”

There has been an increasing trend in the Asian flexible office industry of longer contract terms as companies see value in the offering outside of just its flexible terms, Instant said. Of the deals Instant was involved in in Asia in 2017, seven per cent were for rental terms above 18 months while during a similar period in 2016 this figure was just 2.4%. This trend is in line with those we have seen in the more mature flexible markets of the US and UK.

pnorman@costar.co.uk

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