As COVID-19 imposes new realities on everything from property portal listings to hair-length, we spoke to Mario Berta: Founder and CEO of FlySpaces, Southeast Asia’s number one office space marketplace, about the new realities in the office space market.
We know that companies all over the world are re-evaluating expenditure on work spaces and employees all over the world are getting used to working from home. Is the customer profile for flexible office space changing?
A great number of tenants that initially approached us to seek advice in their search for a conventional office space are currently shifting their requirements towards flexible office space due to the economic uncertainty. This demand is seen mostly from tenants that never considered flexible solutions before and now they are seriously exploring this opportunity for their non core departments, BCP (business continuity planning) and/or for working from home (WFH) solutions.
So, do you think the trend will continue?
The crisis will generate a new number of tenants that will experience flexible office space and its benefits for the first time, and increase the likelihood that those tenants will use it for their permanent office in the future and/or include it in their permanent BCP solutions. Similar to first time online shoppers via e-commerce platform as there are no other options available.
A much greater number of existing tenants in flexible solutions are extending their rentals as well. Clients with a 3 to 6 month contracts are extending for the whole year but asking for rent reductions.
What do you think the big questions in the office space industry will be when we come out the other side?
A great question for the future is how flexible operators will be willing / allowed to fill up their spaces in terms of density, until the health crisis is completely gone and how tenants / employees will be comfortable with density of spaces (both conventional and flexible). This is a real topic moving forward as we all know that proximity between the workstations is not the only concern. Common facilities such as pantries, meeting rooms and everything else are also important.
Flexible office space has been a bit of a niche up to now. Do you see the competition hotting up?
While a number of developers like Philippines’ Ayala (with their own Clock In brand), Singapore’s CapitaLand Ascendas (with Bridge+) and Keppel (with Kloud brand) are already operating their own flexible solution, even boutique or smaller developers will be accelerating to enter this space, if they have not done so already.
The trend of developers across Asia also opening their own flexible solution brand will accelerate quickly. Developers now understand that flexible solutions are here to stay, and with the current economic uncertainty lots of tenants will prefer to have a flexible only or mixed use solution (conventional / flexible) ideally in the same building - and these developers are uniquely positioned to offer this solution.
So as companies increasingly look for flexible solutions and more big players enter the market to provide it, what do you think the likely upshot will be?
It will bring additional capacity to the market but at a much more competitive price, as developers do not have the underlying cost of rent in their financial model. Their objective is to mitigate conventional office space exposure and - where possible - get a higher yield on their flexible solution, which is totally possible.
Some notable examples:
1) BRIDGE+ 3 floors of private offices and events, 56,000sqf managed by Capitaland same as CoSpace and workstations located in other Ascendas-Capitaland buildings), with customer profile of 20 PAX 2) C-SUITE (owned Lendlease): Customer profile 30 to 200 PAX 3) Kloud (Keppel Land): Customer profile 20 PAX
1) Blue-Print (Swire Property). Mostly for servicing existing tenants in the build and between 4 to 20 PAX people. 2) Eaton Club (Great Eagle Holding), customer profile from 2 PAX to 40 PAX
1) Ayala’s Clock-in, with 7 locations across the city targeting tenants of 5 PAX and above (mostly local markets of SMEs) 2) Robinsons’ Workable with 2 locations with more in the pipeline, targeting PAX of 5 and above
Some developers are getting ready to potentially acquire (and consequently run) the operations of defaulting operators in their buildings, as they will end up owing the fit-out investment of the operators, they will have no CAPEX cost.
What is FlySpaces doing for developers in this new office space landscape?
At FlySpaces we are already assisting various developers in the studying phase of adding flexible office space in their buildings, our data is being used to help better assess the financial feasibility of each location.
So with big-players coming into the market, will this have a knock-on effect?
A number of small flexible office space operators that do not have enough cash reserve to go through this storm will potentially close, unless they manage to renegotiate rentals with their landlord and leverage the surge in demand.
Does that affect FlySpaces’ business as a marketplace?
This has a marginal impact on our business as 80% of our leads are generally closed with the top 10 operators in each country where we operate and they are not facing major cash flow issues (I.e. Spaces, Regus, KMC, Common Ground, Co-Hive), and more and more directly with landlords.
We have covered the travails of WeWork on OnlineMarketplaces. Is their situation any different?
Among the top operators, WeWork may receive additional pressure on their already unstable economic situation, but so far the locations across our markets have been filled up with no problems.
With so much change in the sector, do you think the financial stability of the co-working operator will become an important thing for incoming tenants to research?
Each country in the region has what we call a ‘Local Champion’: a homegrown player which competes with the international incumbents (i.e Regus) in each country. They are in a better financial position to handle the local enquiries as tenants will look at the financial stability of the operator before signing a lease.
We made our data publicly available and you can find information about operators in our resource centre: https://explore.flyspaces.com/reports-and-guides