2019年全球共享辦公室業者Wework 18日宣佈進駐台北市信義區,但類似Wework的共享工作空間(Coworking space)在台灣也不少家,Wework共有8層樓空間,預計2019年底將開始招租,而同地段,鄰近的共享辦公室就有來自英國的雷格斯(Regus)、來自新加坡預計2019年10月後會開幕的JustCo、來自香港的德事商務中心等,類似業者多,競爭相對激烈。

這次選了HSBC的一篇2018年12月的研究報告 Primer on co-working – A disruptor in the office rental market,看看co-working space的市場狀況。

How co-working can disrupt the office rental market 

  • Co-working: an evolving landscape 
  • Co-working in Southeast Asia
  • Implications for the property sector/property companies 
  • Winners in the region 
  • Unknowns associated with the co-working model 

Co-working space 是辦公市場上最新的流行語,這是由「千禧一代」日益主導的勞動力對創新和協作的日益增長的需求所驅動的。雖然co-wokring space 在大多數門戶城市 (gateway city)的中央商務區(CBD)辦公總庫存中所佔比例相對較小(2.5-4.0%),但在過去幾年中,這一比例一直在增長。特別是,在許多門戶城市中,由於目前的co-working spce貢獻了15-25%的總佔有率,它越來越成為許多房東和房地產公司的關鍵租戶。

假設該行業以每年10-15%的速度增長,那麼在未來五年內,co-working space的運營商可能佔到許多主要門戶城市CBD總庫存的4-8%。房地產服務公司JLL最近的一份報告發現,從2014年到2017年,亞太地區包括服務辦公室和合作辦公室在內的靈活工作空間 (flexible workplace) 增長了150%,在此期間,亞太地區主要的靈活工作空間運營商的數量翻了一番多。

Demand drivers for co-working and their implications

(1)Regional and multinational companies are increasingly a significant source of demand

(2)Gateway cities are likely to further entrench their status

(3)Large property groups are adjusting their offerings and investing in co-working

(4)Consolidation is likely in the event of a recession, with stronger operators better off

Co-working growth is off a low base and the market is highly fragmented

(1) In the US (the largest co-working market in the world, with c50% of the global co-working stock), co-working operators take up only c1% of the total stock of 5bn sf of office space (across 87 key sub-markets).

(2) Even in Manhattan, the largest co-working market in the US, co-working accounts for less than 3% of the total office stock.

(3) in the US, there are over 200 co-working companies operating out of at least one 5,000 sf-plus location.

Co-working in Singapore and the rest of Southeast Asia – Singapore is the key co-working market in Southeast Asia…

 As of July 2018, Singapore had 36 co-working operators operating out of 120 locations, almost 2x the number of operators and locations from four years ago, implying a c20% per annum CAGR over this period on both counts. The sector has seen expansion from local operators, such as JustCo and The Great Room, while Chinese operators like Distrii as well as US-based WeWork have also entered the market.

The rest of the region in Southeast Asia is latching onto the co-working trend as well

For the rest of Southeast Asia, co-working is less dominant when compared with other gateway cities, judging by the percentage of the total CBD office stock that is occupied by co-working operators. In general, across the more developed cities in Asia (ex Japan), co-working operators occupy 2.5-4.0% of CBD stock – it is lower for Bangkok (1.5% of CBD stock), Jakarta (1.9% of CBD stock), Manila (2.5% of the CBD stock), and Kuala Lumpur (less than 1% of the CBD stock). However, the trend of co-working is gradually catching on. For instance, in Jakarta, co-working made up 19% of the gross take-up in 2017 (vs 15-25% gross take-up across most key cities in Asia (ex Japan) in 2017).

Winners in the region

Some of the largest property groups in the region are the best placed

Some of the largest property groups in Southeast Asia have been quick to realise that co- working, as a model, is here to stay and have responded to developments in this space accordingly by investing in these operators or collaborating with them in one way or the other. The most active amongst them are the large property groups in Singapore:

CapitaLand (Singapore)

CapitaLand, a Temasek-linked company, is one of the largest property companies in Southeast Asia. In recent years, management has re-focused the business on its core markets and key business segments, taking a more active approach towards divestments and asset recycling. With regards to co-working, the company has made investments in 「The Work Project Kingdom」 and 「Flexi-Suites」 and also stands to benefit indirectly, given it sponsors office REIT CapitaLand Commercial Trust and retail REIT CapitaLand Mall Trust and has stakes in these entities.

City Developments(Singapore)

 City Developments Limited is one of the largest property companies in Singapore and is controlled by the Kwek family.  With regards to co-working, the company has invested in Distrii, a Chinese co-working operator.

Frasers Property(Singapore)

Frasers Property Limited is one of the largest property companies in Singapore and controlled by TCC Group and Thai Beverages, which in turn are controlled by Charoen Sirivadhanabhakdi.With regards to co-working, the company has made investments in co-working operator JustCo and also stands to benefit indirectly, given it sponsors office REIT Frasers Commercial Trust and retail REIT Frasers Centrepoint Trust and has stakes in these entities. 

Ayala Land (Philippines) 

-Ayala Land is one of the largest property companies in the Philippines and Southeast Asia and is controlled by the Ayala family.With regards to co-working, the company has invested in Clock-In, its co-working offering. 

Central Pattana (Thailand) 

Central Pattana is Thailand’s largest listed retail landlord and developer and is controlled by the Central Group (which in turn is controlled by the Chirathivat family).With regards to co-working, Central Pattana has recently invested in Common Ground, which is a co-working operator, and has also made indirect investments in co-working by customising areas within the company’s shopping malls that appeal to co-working operators – this fits well with the company’s strategy to turn the shopping malls into 「destinations」 that appeal to a broader demographic. 

Co-working fits in with the 「environmental」 aspect of ESG

In the past few years, sustainability and ESG (environmental, social and governance) considerations have become important for many companies across the region. In Singapore and Malaysia reporting on sustainability has become mandatory, while for some other countries, such as the Philippines, this will become mandatory over the next few years. Our analysis of different property companies across the region suggests that the key ESG aspect associated with co- working that deserves emphasis is 「environmental」. There was no meaningful mention of the 「social」 and the 「governance」 aspects of ESG in relation to co-working.

Unknowns and potential risks related to co-working

(1)Despite projections, assessing the size of the market remains a challenge

(2)Impact of co-working on long-term aggregate office demand remains unclear

(3)Co-working operators have yet to experience a major recession

Example: Looking at how Regus (the oldest flexible space operating company) did over the past two recessions and using that as a proxy, our conclusion is that an economic downturn could have a significant impact on the co-working sector at large. Currently, in many cities/counties, there are hundreds of different companies in the co-working space, most of which are small. It is likely that many of these firms would go bankrupt in the event of a recession, if and when it occurs. Consolidation is likely at that stage, with the largest and best capitalised operators driving consolidation. These players will likely emerge stronger and with greater influence and bargaining power in this space.

(4)Perception issues around assets substantially leased to co-working operators

(5)Organisational culture and IP rights-related challenges

Co-working: an evolving landscape

Co-working and its proposition

Addressing the search for flexibility and convenience in the office leasing market

Below we highlight the various forms in which office space is available in mature markets and the differences and/or salient features associated with the various offerings.

  • Co-working offices: These are turnkey work spaces occupied by people, who are self-employed or working for different employers, sharing space, equipment, and services that are provided by a third-party provider. Co-working providers typically enter into traditional, long-term lease arrangements with landlords and then sell short-term, all-inclusive memberships – typically on a monthly basis. The occupier is buying a membership, not signing a lease.
  • Speculative offices: These are small, ready to move-in spaces dedicated to a single tenant. Leases tend to be slightly shorter than for the usual traditional space offerings but not as short as co-working memberships. The responsibilities for building services and maintenance are allocated in the same way as in a traditional office space lease.
  • Traditional offices: These are the most common lease arrangement between a tenant and a landlord. Leases tend to be longer and the space is dedicated to a single tenant. The tenant is responsible for building out the space in most instances and in some markets could be provided with a tenant improvement allowance or a rent-free period to carry out fit-outs. Landlords are generally responsible for building services and maintenance; however, under some lease arrangements, these costs can be passed on to the tenant.

Drivers behind the popularity of co-working

  • Recent prominence and growth of co-working driven by the convergence of demand drivers
  • Growth in entrepreneurial ventures and a shift towards freelancing/contract work
  • Business collaboration and innovation hubs
  • Technology has made flexible working arrangements more feasible and desirable
  • Talent attraction/retention and productivity improvement
  • Flexible way to manage space needs
  • Cost savings for companies

Trends in the co-working industry

US is the largest co-working market globally

Globally, co-working stock is estimated to be in excess of 80m sf (50m sf in the US, 20m sf in Europe, and 10m sf in Asia). The US is the largest co-working market in the world with more than 50% of the global co-working stock and over 200 co-working companies operating across the country. As such, we look at that market to get some perspective on developments in the industry.

Greater concentration on key gateway cities

Approximately half of the c50m sf of co-working stock in the US is in six gateway markets: Manhattan, Los Angeles, San Francisco, Chicago, Washington DC Metro, and Boston. While there is a growing number of non-gateway markets gaining popularity, co-working operators have primarily focused on the gateway markets. The most prominent of the gateway markets – Manhattan – has significantly more co-working space than other market (c11m sf as of 1H18). WeWork – founded in 2010 in New York City, and one of the best known and fastest growing co-working firms in the world – is one of the largest occupier of office space in Manhattan, occupying more than 4.6m sf of space; this is c50% of the total co-working stock in Manhattan. New York City (Manhattan, Brooklyn and Queens) co-working inventory totals 12m sf – nearly equal to the five other gateway markets combined.

Strong growth driven by a possible broadening of the user base…

The co-working industry’s growth has been strong over the past few years, driven by a possible broadening of the user base. 

WeWork opened 87 new locations in 12 new cities and five new countries since the start of 2018 with the total memberships registering a 110% increase y-o-y for 1H18. To keep up with demand, WeWork increased its desk space to over 300,000 (a 95% y-o-y increase); however, despite this, occupancy now is 84% (vs 78% a year ago) with half of the buildings now over 90% occupied. As of 1H18, WeWork had a presence in 77 cities (287 locations) across 23 countries and a membership base in excess of 268,000. The chart on national co-working inventory growth in the US also suggests that the pick-up in growth has gained momentum in the past 3-4 years.

While the co-working and the flexible space industry, at large, has traditionally catered towards freelancers or small business operators, this landscape has been gradually evolving as other occupiers see the prospective benefits of co-working. The broad industry trend in the US suggests that freelancers, who used to make up 55% of all memberships in 2012, declined in prominence and now make up 41% of all memberships as at end-2017. In that five-year period, employees and employers have increased their proportion of memberships from 40% to 52% of all memberships.

…but the low base has also had an impact on the growth trajectory

One of the drivers behind the strong growth could simply be that it is coming off a low base, given that co-working is still small as a percentage of the total office stock for most gateway cities. For instance, in the US, which is the largest co-working market in the world with c50% of the global co-working stock, co-working operators take up only c1% of the total stock of 5bn sf of office space (across 87 key sub-markets). Even in Manhattan, the largest co-working market in the US, co-working accounts for less than 3% of the total office space, while in other gateway markets co-working space makes up 1-3% of the total office space.

It remains to be seen how fast the industry can continue growing – industry consultants see a 10-15% per annum growth across all regions in the coming years. If this momentum continues, we think co-working operators could take up 4-8% of the total CBD office stock over the next five years and 5-15% of the total CBD stock over the next 10 years in many key gateway cities.

Despite some large players, the industry is highly fragmented

While there are some large operators globally and regionally, the industry remains highly fragmented with hundreds of operators in each key market. According to estimates from property consultants, there are more than 200 co-working companies across the US operating in at least one location with a space in excess of 5,000 sf. Likewise, in Singapore, by some estimates there are 100-200 co-working operators with many new operators emerging on a regular basis. The below list is by no means exhaustive but highlights some of the co-working operators that have emerged in the US and some of the major markets globally.

Co-working in Southeast Asia

  • Singapore is a vibrant hub for co-working in the region
  • Demand in Singapore both from start-ups as well as large corporates
  • Co-working is catching on in the rest of Southeast Asia as well

Singapore’s co-working market has been growing rapidly

Co-working operators have increasingly become more influential in Singapore’s office leasing market as traditional occupiers from sectors, such as banking & finance, have moderated their expansion plans. According to Colliers, co-working operators now make up c20% of the gross take-up in the office market in Singapore’s CBD – in our view, the net take-up proportion is substantially higher. However, given this is off a low base, Colliers estimates that co-working operators occupy less than 4% of the total CBD office stock in Singapore (2017: less than 2.5%). Activity has picked up so far in 2018; the pick-up in the number of operators and centres has gained momentum so far in 2018 and with it the leasing activity in the market.

Co-working in the rest of Southeast Asia

Rest of Southeast Asia is also progressively catching up on co-working

Generally, across the more developed cities in Asia (ex Japan), co-working operators occupy 2.5- 4.0% of the total CBD office stock (this compares with 3.0% of the CBD stock in Manhattan and 2.5% of the CBD stock in gateway office markets in the US). In that regard, co-working is less dominant in Bangkok (1.5% of CBD stock), Jakarta (1.9% of CBD stock), Manila (2.5% of the CBD stock), and Kuala Lumpur (less than 1% of CBD stock), but the trend is gradually catching on. For instance, in Jakarta, co-working made up 19% of the gross take-up in the market in 2017 (this compares with 15-25% gross take-up across most key cities in Asia (ex Japan) in 2017).

Jakarta (Indonesia):

Activity picked up in Jakarta since 2017 – it is estimated that co-working contributed to 19% of the gross take-up of office space in Jakarta’s CBD last year. Prior to 2017, co-working operators in Jakarta largely operated from the city-fringes, occupying shop houses in retail areas, but now it is estimated that there are 80 flexible workspace centres operating in Jakarta. The prominent operators that have been active in the market are COCOWORK, WeWork, Spaces and GoWork. Like in other markets, co-working operators are expected to increase their presence over time as both local and international operators cater to increased demand from a more diverse range of end-users – a function of greater awareness of co-working as an alternative to traditional office space not just for start-ups but also for multinationals seeking flexibility for employees and a supportive, communal environment for their innovative business functions.

Metro Manila (Philippines):

In Metro Manila, the total number of flexible workplace locations has reached over 80 locations, with demand driven by freelancers, and micro-, small- and medium-sized enterprises alongside multinational companies that have established start-up teams in flexible workspace settings (similar to the trend in other markets). It is estimated that 4% of the leasing activity (gross take-up) in 2017 was attributable to co-working operators and that today 2.5% of the total CBD office stock is occupied by such operators. In this regard, the market is relatively nascent – local players have been more active; however, with WeWork recently taking up 40,000 sf-plus Uptown Bonifacio in October 2018, activity could pick up.

Bangkok (Thailand):  

In Bangkok, co-working has gained in popularity of late and, as such, co-working space is expected to increase 25% in 2018 (to 125,000 sqm) driven by both local and international players. The concept is not new and has been around in Bangkok for some time (it was pioneered by Thai-operator Hubba in the Ekamai area). There were c132 co-working locations in Bangkok (as at end-2017), and this is expected to increase to 150 by end-2018, according to CBRE. However, despite the projected 25,000 sqm increase in co-working space, the total space occupied by co-working operators would still be 1.5% of the total office supply in Bangkok. Key operators in the market include local players, such as Glowfish and Hubba, as well as foreign names, such JustCo, The Great Room, and Spaces, as well as WeWork.

Kuala Lumpur (Malaysia):

According to estimates from Instant Group (an independent flexible workspace specialist), there were a 104 flexible workspace centres operating in Kuala Lumpur (KL) as at end-2017, with the market having grown 28% from 2015 to 2017. Relative to the city centre of KL, co-working space in Malaysia has flourished more in the Greater KL areas of Bangsar, Mid Valley, Mont Kiara and Petaling Jaya. These locations, which are outside the city centre, are cost efficient and also circumvent traffic plaguing the typical home-to-office commute in the city. As in other markets, co-working in Malaysia is not a new concept but an evolution of serviced offices that emerging enterprises typically use during their gestation period. Also, the concept has been of greater appeal to the workforce, given it is increasingly populated by the 「millennial」 generation, and also complements the proliferation of Malaysia’s 「gig economy」 (comprising freelancers or independent contractors). According to Chairman Samsudin Osman of Malaysia’s Employee Provident Fund (EPF), job growth in this segment has outpaced the traditional job market. Major co-working operators active in Kuala Lumpur include Common Ground, WeWork and Colony. Accordingly to estimates from Savills, 0.3% of the total Greater KL office stock is occupied by co-working operators today – if one were to include serviced offices, the total flexible work space makes up less than 1% of the Greater KL office stock.

Implications for the property sector/property companies

  • Key gateway cities will likely further entrench their position
  • Traditional roles of landlord, tenant, and service providers are blurring; landlords will likely collaborate more with co-working operators
  • 「Environmental」 benefits associated with co-working fit in well with the ESG initiatives undertaken by property companies in the region

Unknowns associated with the co-working model

  • Assessing the size of the market, implications on long-term aggregate office demand, and impact of recessions remain unknown
  • It remains unclear how lenders, valuers and investors may perceive properties with a large proportion of co-working tenants
  •  Co-working model poses risks for occupants seeking to build an organisational culture or protect intellectual property rights

Despite projections, assessing the size of the market remains a challenge…

Across the major office markets in Asia, co-working operators make up 2.5-4.0% of the CBD office stock (average: 3.3%). In Manhattan where co-working operators are most prevalent, they take up 3% of the office stock. However, this has grown sharply in the past one year, which raises questions around how large co-working can eventually grow, in particular in gateway cities. If demand for co-working is sustained at 10-15% per annum, we think co-working operators could take up 4-8% of the total CBD office stock over the next five years and 5-15% of the total CBD stock over the next 10 years in many key gateway cities.

However, despite these projections, we think assessing the size of the market remains a challenge, as this is predicated on the growth rate for the industry at large, which in turn is predicated on several unknowns. In particular, given that demand in gateway cities may not be completely attributable to domestic demand drivers, and the impact of a recession on co-working operators remain unknown, policymakers could end up over- or under-estimating demand and correspondingly under- or over-supply the market.

…as does determining the implications for long-term aggregate office demand

While co-working has driven demand for office space across various markets over the past few years, it remains unclear how much of that demand is truly accretive. After all, co-working is generally seen by some as a 「disruptor」 – the bedrock for all disruptors is efficiency; in this case, this may translate eventually into lower aggregate demand for office space. While freelancers and some business owners probably represent 「new demand」, corporate users – typically associated with a more mature co-working market – may not represent 「new demand」; instead, such demand could be net-neutral at best, as they would typically be in a traditional office space had they not moved into a co-working space. In fact, this could be demand-dilutive in the long run, as such occupiers may end up taking less space on an effective basis, given more optimised space usage, the concept of shared resources, etc., in a co-working set-up.

The co-working model is yet to see a major recession

Co-working is fundamentally a different way of approaching the office leasing business. Like 「operator-linked」 businesses, such as hotels and serviced apartments, co-working operators are inherently riskier tenants from a landlord’s perspective. As most co-working firms have come up over the past few years (for instance, WeWork was only founded in 2010), they have not been around long enough to have experienced a recession. This raises the question as to how such firms may perform in the event of a recession.