Long-term fundamentals for flexible working space remain sound, CBRE says

By Poovenraj Kanagaraj

As the number of daily new-Covid-19 cases decrease in Asia Pacific, occupancy rates in several major co-working centres in Mainland China and Hong Kong SAR have started recovering.

According to CBRE’s Covid-19 Implications for Flexible Space report, the recovery trend is expected to be replicated in other markets as restrictions are gradually lifted.

“With industry competition intensifying in recent years, many flexible space operators have begun to re-evaluate their business models and introduce new strategies to support longer term growth,” CBRE stated.

Additionally, more merger and acquisition activity among operators is expected and closures of unprofitable centres will be unavoidable but surrendered or sub-leased space is likely to be taken up by other co-working operators that are financially sound.

Operators are also expected to seek to manage operational costs, pursue sustainable growth and exert tight control over capex. CBRE also further expects to see instances of larger players acquiring fitted space from smaller operators as part of a broader trend of industry consolidation.

Flexible working space are said to be occupying about 4 percent of total Asia Pacific office stock and accounts for a slightly lower figure in the Grade A segment.

Following the onset of the pandemic, co-working space operators have prioritised renewals with existing customers, with some groups offering membership fee reductions, fee waivers for certain periods in exchange for contract extensions and fee payment deferrals.

According to CBRE, a Singaporean based operator recently offered 3000 of it customers in eight different cities across the region a reduction of up to 30 percent on one month’s membership fees.

Operators are also expected to offer highly incentivised rates for longer lease terms as part of their efforts to attract new members.

Currently, CBRE has stated that many operators have also started to approach landlords to renegotiate and restructure leases, while others are pushing for transition revenue-sharing models or are entering into management agreements.

“Other opportunities may lie in providing virtual office services including phone-answering, communications and other system,” CBRE said.

On the other end, landlord sentiment towards flexible space operators had already turned cautious since last year due to a range of factors including perceived over expansion.

“More landlords now are balancing the optimal number of operators in their portfolios and stringently evaluating the profitability of individual operators before accepting them as tenants,” CBRE stated.

CBRE further added that, the long-term drivers of flexible space demand are intact, with smaller users continuing to seek cost effective fully furnished space and large multinationals looking to build more flexibility into their office portfolio. However, there will inevitably be some failures among operators.

 

 

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