Growing flexible workspace demand

Demand for flexible workspace has been growing leaps and bounds in the Philippines.

In fact, according to the latest report from Colliers International, there are around 60 flexible office space operators as of end-2016, with the area dedicated to flexible workspaces reaching 228,000 square meters.

Colliers expects the number to grow by 10 percent annually in the next three years as demand for co-working spaces is spurred by the millennial-dominated workforce.

So what are flexible workspaces?

Colliers, in its report entitled “Mining Millenials: Finding Gold in Co-working Spaces,” defines flexible workspaces as any workplace that allows short-term leases, with a minimum size of one seat, fully-furnished, and ready to use. The workspaces may be shared, private, or a combination, and may include other services like telephone lines, meeting rooms, a receptionist, internet services, secretarial services, among others.

In short, if you are just starting a business, but do not want to incur monthly expenses such as paying office space rental, then there a number of flexible workspace operators that can offer services as simple as giving you an office number and an office address which you can put in your calling cards, a secretary who can take calls for prospective clients, for as low as P5,000 a month. But in reality, you are doing your business from your home, which for some does not appear to be professional enough. In case you would need to meet a client face-to-face, then the said operator can offer you a meeting room for a fee.

According to the Colliers report, there are three kinds of flexible workspaces. These are serviced offices, hosted services firms, and co-working spaces, all of which provide basic needs such as airconditioning, a workstation, and fast internet.

Serviced offices provide the most fundamental services and were the first to enter the market. They are usually located in prime locations within central business districts. Prime tenants would be multinational companies and charge about P19,000 per seat per month.

Hosted services firms came next, but are different in the sense that they provide back office, non-core services such as IT services, human resource staffing, and accounting. Their tenants are small business process outsourcers and other traditional companies that are not keen on having a prime address, but are more concerned about being in a quality building at a more reasonable price, Colliers explained. The price is about P14,000 per seat per month.

And then we have co-working spaces which allows daily use at P500 per seat. Its operators, according to the report, integrate the comfort of home, the ambiance of a neighborhood café, and the functionality of an office, and encourage tenants with similar interests to collaborate in a shared working environment.

The report revealed that the flexible workspace office space in the country is dominated by hosted services firms comprising 76 percent of total stock, followed by serviced offices with 19 percent, and co-working spaces with five percent.

But co-working spaces have been the fastest growing, followed by hosted services, and then serviced offices.

Serviced offce leader Regus entered the market in 1999 and according to news reports, now has 11 business centers. Most of its customers are from Fortune 500 companies, but it also caters to entrepreneurs, start-ups, mobile workers, and SMEs.

Today, there are names like Compass, Servcorp, CEO Suite, Sales Rain, Anthem Global, to name a few. Co-working spaces started in 2011 with Co Lab Xchange, followed by A-Space, and then other players like Acceler8, The Office Project, and LaunchPad.

According to Colliers, flexible workspaces have become a reflection of the health of the office market through the years, and the ability of the workspaces to evolve and adapt to the changes in a short span of time has sustained the growth of this sector.

It noted that the sector transitioned from more traditional companies in serviced offices in the early 2000s to BPOs in hosted services in the run up to the next decade, and finally freelancers and start-ups in co-working spaces more recently.

Colliers has identified five key drivers in the growth of this sector and these are multinational companies using the space, BPO’s role in the local market, emergence of start-ups and freelancers, importance of technology, and growing millennial workforce.

Some of the biggest office space takers in Metro Manila in the last few years have been tech companies like Google, Uber and Grab, it said.

Given these drivers, Colliers expects the current flexible workspace stock in Metro Manila to grow by at least 10 percent a year in the next three years, but this forecast is slower than the 30 percent growth expected in the entire Asia-Pacific region. This it pointed out is due to the fact that growth is constrained by the new supply given that total office supply growth in the metropolis in the last three years stood at seven percent because of construction delays, that conventional serviced offices and co-working spaces are constrained with the upcoming supply designed for large BPO tenants, and that the potential for co-working spaces in Metro Manila is limited by the low vacancies where major CBDs are at one percent.

Nevertheless, the company stressed that co-working spaces present a great opportunity given that it is still in its early stages in the Philippines, because serviced offices and hosted services firms find themselves participating in this co-working segment, and because co-working provides the cost advantage that is important in a market characterized by increasing rents.

Colliers noted that serviced office leader Regus has launched Spaces, which is its co-working brand in other major cities like Singapore, Sydney, and Tokyo, and that it would just be a matter of time before it is launched here. Hosted services provider Sales Rain has also expressed plans of establishing a co-working alternative for individuals and freelancers looking for workspaces, it added.

According to Colliers senior manager for research Randwil Dinbo Macaranas, moving forward, lease terms must not be onerous that companies use more space or pay higher rents than necessary, for a period that is longer than required. He also advised flexible workspace operators to look into partnering with developers to mitigate the impact of increasing rents and for developers to dedicate co-working spaces in their buildings to take advantage of the segment’s growth.

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