Advances in technology, a more mobile workforce and unpredictable economic growth are starting to reshape the business environment and transform the approach that occupiers use when making office space decisions.
In the Bangkok office market, a traditional three-year lease with options to renew and the tenant fitting out the space remains the typical way of leasing office premises for most occupiers. Multinational companies, however, with offices in different countries, are increasingly looking for flexible lease terms as real estate costs continue to be one of their major concerns.
Companies are also looking at agile working, whereby staff no longer have allocated desks. In some cases, it's easier to get third parties to design, build and operate this space, rather than having companies doing it themselves.
Some of the current pricing being offered by co-working space operators is competitive. Low cost combined with flexibility is making leasing from third parties more attractive for companies than leasing space, fitting it out and managing their own premises.
In Bangkok, co-working space continues to be an emerging source of office demand. CBRE has leased over 44,000 square metres, accounting for about 25% of its total new office letting volume in the last two years, to co-working space operators.
International operators including JustCo, WeWork, Spaces and The Great Room have opened multiple centres, with more scheduled to open this year. The aim of these operators is to revolutionise the way occupiers source office accommodation. They want to provide office space as a service rather than a traditional lease.
CBRE believes that co-working space operators are not just targeting startup companies but also multinational firms, especially those seeking to build more flexibility into their real estate portfolios. The use of co-working space can provide flexibility for companies to accommodate fluctuations in space requirements.
As well, accounting rules have changed and rent payable under leases must now go on the balance sheet. But it appears that sourcing office space as a service does not count as a lease and therefore need not be on the balance sheet.
This means occupiers don't need to commit to a traditional three-year lease term. Instead, they are paying their rental as a service fee on a per-desk or membership basis rather than per square metre.
Co-working space operators also provide tailor-made solutions, with companies enjoying exclusive use of the space and not having to share it with others, making this a viable alternative to a traditional lease for large local and multinational firms.
As millennials will soon become the largest generation in the workforce, CBRE foresees companies being forced to rethink their workplace quality. The goal will be to make the workplace capable of encouraging collaboration and innovation, as well as promoting employee well-being. More companies will transform their offices into agile workplaces, either by themselves or relying on a co-working space operator to provide the solution.
Although co-working space operators are now one of the largest sources of demand for office space around the world, depending on the size, they are effectively competing with their landlords for similar tenants. As new co-working space is fitted out and comes onto the market, this competition will increase.
Co-working space operators complement the space provided by landlords by appealing to tenants that would not take a traditional lease. Competition occurs for larger tenants that are increasingly comparing both options when they decide to take new premises.
Pobporn Svetasobhana is a senior analyst in research and consulting at CBRE Thailand. He can be reached at bangkok@cbre.co.th