There is now no doubt the rapid increase in co-working spaces is reshaping office leasing and will continue to do so.
The most recent report on the trend released this month (November 2018) by CBRE found 100% of large Australian corporate occupiers intended to increase their use of coworking space in the next two years.
At the same time, almost 60% of Australian occupiers plan to reduce their traditional leased office footprint in the next 24 months and 55 % plan to increase their use of coworking space. About 47% aim to acquire more meeting and event space, too, reflecting a shift towards an office portfolio with a greater proportion of flexible space options.
What’s more, 40% of Australian occupiers surveyed are already using flexible workspace solutions as part of their portfolios. Another telling finding is that 47% of Australian corporates are more likely to be using coworking spaces, followed by serviced offices at 33%.
Coworking is believed to have started in San Francisco in 2005. Now almost 20 years later Anthony Harris, Principal of Ray White Commercial Office Leasing Sydney compares its impact to Uber’s disruption of the taxi industry.
“No one thought we’d be going home in a stranger’s car after Friday night drinks and booking our ride online,” Mr Harris says.
“In the same vein, no one ever thought 10 years ago that there would be instances as we had recently where a large legal firm was seeking short term casual office space in a specific part of the CBD as their lawyers were appearing in court case taking place nearby. Traditionally they would have come to us asking for 100 sqm and being handed a three-year lease.”
CBRE’s Associate Director Research Felice Spark who helped lead the survey team agrees the effects are being felt in the marketplace.
“All our clients are grappling with ‘what shall we do to provide a flexible space offering’ and ‘what should our offering be?’ Ms Spark says.
One of the more surprising findings from the CBRE survey that will impact the leasing space was the “overwhelming” 89% of Australian occupiers who said they would prefer being in a building with meeting and event space they could access on an as-needed basis.
“That tells landlords they have to cater for this demand,” Ms Spark says.
Signs of the times
Some leasing agents are beginning to find certain types of office space more challenging to lease as the market struggles to adjust. “The sub 200 sqm market is now harder to rent out due to this trend,” Mr Harris says.
“It’s definitely affecting my business because landlords are trying to catch up, but they don’t have the answers. And it is also affecting us because agency is normally around finding tenants long term space not short-term space.”
Also more challenging to lease were offices with stylish fit-outs that still came with 3 to 5-year fixed leases. “Serviced operators are offering exactly the same product on 3-month leases,” says Mr Harris. “It’s starkly apparent that in the future those landlords who don’t have a short term offering or a tenant in their building like WeWork will be facing vacancies.
“Building landlords will also need to have a solution if a short-term tenant needs to grow and take on more people or contract.”
Leading real estate group Dexus is one to have taken the reins, unveiling in July a range of high-quality suites filled with premium furnishings and offering flexibility both in terms of space and tenure. The 10 spaces comprising SuiteX take up a whole floor of 44 Market St in Sydney’s CBD.
In contrast national director of office leasing for Colliers International Louise Rowe says demand from coworking tenants is not having a noticeable effect on the small end of the office market - at this stage.
At present tenants are still being referred to coworking providers when short term solutions cannot be found.
“There is still strong demand from small tenants (sub 500sqm) for their own identity, but affordable, and this is reflected in the demand we receive for fitted out office space,” Ms Rowe says. “Subsequently our landlords are subdividing floors and building spec fit-outs to accommodate this demand.”