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Flexibility: The driver of coworking office space demand

May 14, 2018
Categories: Commercial

The amount of coworking space in Australia has soared by almost 300 per cent since 2011.

Coworking companies, such as WeWork and Space&Co, are taking up tenancies in prime real estate in response to flexible working environments being in vogue for young, white-collar Australians.

Existing landlords of traditional office real estate need to be aware and prepared of the demand for new flexible working movements, where coworking operators are enticed by flexible design and layouts for their mobile members.

We show why coworking spaces have become a global phenomenon, and why landlords may want to consider coworking operators as tenants in their own office assets.

Workplace design

Coworking spaces boost wellbeing in the workplace, as shown by such groups as the International WELL Building Institute. While a NABERS Rating displays the environmental performance of a building (which subsequently enhances employee productivity and welfare), a WELL rating incorporates comfort and mind interventions in their assessment of workplace design.

These spaces nurture rich and meaningful interactions (such as those offered by coworking operators) and enrich the employee experience.

This is the golden era of companies focusing on employee wellbeing, with the outcome being improved employee productivity. Landlords are increasingly embracing these new workplace practices by ensuring a contemporary approach to office space design – which subsequently appeals to high quality tenants of the modern-day.

Work freedom for the next generation

Generation Z is classed as Australia’s “Digital Integrators”. Born between 1995 and 2009, these young workers and students are rapidly entering the workplace. They customise all aspects of their life, and many have taken advantage of the established dot com era by even starting their own side businesses and projects while at school and university.

This massive population of Gen Z’s will dominate the workforce in the coming years. Catering to their appetites has the ability to make or break enterprises, as well as their impact and their relevance.

While many Gen Z’s and similar personas prefer independent work, it is their collaboration, networking, and sharing of knowledge and ideas that are integral to how they operate. Such opportunities are found in coworking spaces, giving even more justification to the growing demand from this strengthening segment of the office property industry.

Common areas form the backbone of coworking operations and this is to the advantage of landlords. The upside of tenants such as WeWork, Space&Co, and Hub, is that they create the common areas themselves for their members. This means all common space is included as lettable area.

This compares favourably to the old model of dividing a floor plate between multiple tenants, resulting in a loss of precious NLA (which is then difficult to recover). 

Modern business and employee demands

Landlords will understandably look for longer leases to ensure the ongoing value of their commercial assets. But with changes over the years to both technology and working generations, concessions have had to be made by those hungry to fill vacant office space.

The growing demand of flexible leases, and the lack of desire by landlords to provide them, has created a market for collaborative, coworking spaces.

As tenants, coworking operators will sign leases of regular several year terms (for example, Sydney’s 100 Harris Street houses one of WeWork’s five NSW offices; Dexus purchased the building last year with a WALE of 7.6 years). But as business operators, they ‘lease’ this space to their flexi-working members on short-term agreements – sometimes even on a monthly basis.

This arrangement supplies the landlord with a quality tenant, and enables the tenant to soak up flexible workplace demands of the modern-day worker.

Attractiveness to other tenants

Securing a coworking operator as a tenant provides a tangible commercial advantage in attracting other tenants to the space who can make use of the facilities offered.

The evidence lies in such coworking operators who themselves have transitioned from tenants to landlords. WeWork is a global network of workspaces servicing highly mobile white-collar workers. The Australian arm has purchased two office assets in the past year alone, which indicates a forward-thinking strategy.

Real estate titans GPT Group and Blackwall have welcomed demand of increased flexibility by opening their own coworking space, Space&Co. With several locations throughout Melbourne & Sydney, they have joined WeWork by becoming both landlord and tenant.

Quite simply, businesses and investors who have an understanding of flexible workspace will continue to push the evolution of real estate strategies – particularly for managers of unlisted property trusts.

Tomorrow’s demand is today’s opportunity

Coworking operators occupy as much floor space in Australia as the entire Darwin office market (approx. 216,000 square metres). The takeover is expected to continue as workplace designs progressively cater to the needs of entrepreneurs, micro businesses, freelancers and aggressive multinationals.

The demand is here now, meaning landlords don’t have to wait for Gen Z’s to fully occupy the workplace. Nor do they have to sit back and see others take advantage of the growth in such tenants. The opportunities await them today.

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