Knight Frank releases the Co-Working Spaces Report today which analyses the current co-working landscape, landlords’ reaction towards the slowdown of the co-working industry, and market opportunities for landlords in the post-pandemic era.
Highlights:
• Over the past decade, we have witnessed a massive rise in the number of co-working space operators in Hong Kong. International operators and players from Mainland China have expanded rapidly in the market. Many took the opportunity to serve the growing market of start-ups, small businesses and freelancers, who appreciate more flexible commercial terms and require a smaller footprint.
• However, the proliferation of co-working operators quickly slowed down in recent years, resulting in a rising number of operators reported to be in financial trouble because of over expansion and, in some cases, mismanagement.
• The debacle in the co-working space industry has left some landlords with a significant amount of surrendered space, typically in large floor plates, adding to the pressure from a leasing market that was already slowing down. However, this has allowed some opportunistic landlords to capitalizing on the vacant space.
• A number of landlords responded proactively by either operating the space themselves or forming joint ventures with established operators.
• For landlords, having their own co-working space brand and self-operating the space enables them to serve their tenants in a more bespoke way and provide a wider range of services to their tenants. Landlords can also offer the shared facilities in their co-working spaces to other tenants in their portfolio, creating a community and thus synergies among tenants. This combination can increase the appeal of, and demand for, their properties, which will eventually increase the value of their assets.
• The ability of landlords to operate their own co-working brand will help them to not only differentiate themselves in this competitive market, but also prepare for the next wave of demand from flexible workspace operators.
• The COVID-19 pandemic has prompted some companies to quit traditional office space and shift to co-working spaces as a substitute, boosting demand for co-working space.
• Many smaller companies and start-ups do not want to commit to long-term leases, especially amid the market downturn. Larger companies, as well, have started to include flex space as part of their holistic real estate strategy to reduce overhead, or are looking for satellite offices without large, upfront capital investment.
Looking ahead, Lucia Leung, Associate Director, Research & Consultancy, Greater China, Knight Frank, expects remote workforce will grow in the post-pandemic era, demand for flexible workspace will inevitably increase. She also expects traditional and institutional landlords turning into co-working space operators to be a continuing trend to watch.