Advances in technology, a more mobile workforce, and unpredictable economic growth are starting to reshape the business environment and transform occupiers’ approach to 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 firms, 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 where staff no longer have allocated desks and, in some cases, it is easier to get third parties to design, build, and operate this space rather than companies doing it themselves.
Some of the current pricing being offered by coworking space operators is very competitive and the cost combined with flexibility is making leasing from third parties more attractive than companies leasing space, fitting them out, and managing their own premises.
In Bangkok, coworking space has continued to be an emerging source of office demand and CBRE has leased over 44,000 sq. m., accounting for around 25% of CBRE’s total new office letting volume in the last 2 years, to coworking space operators.
International operators like JustCo, WeWork, Spaces, and The Great Room have opened multiple centres over the recent year some of which are scheduled to open this year. The aim of these operators is to revolutionize the way occupiers source office accommodation. They want to provide office space as a service rather than a traditional lease.
Not just targeting startups companies
CBRE believes that coworking space operators are not just targeting startups companies but also multinational firms especially those seeking to build more flexibility into their real estate portfolio. The use of coworking space can provide flexibility for companies to accommodate fluctuation in space requirements.
Accounting rules have changed and rent payable under leases must now go on the balance sheet, whereas 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 do not 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. Coworking space operators are also providing tailor-made solutions with companies enjoying exclusive use of the space and not sharing it with others, making this a viable alternative to a traditional lease for large local and multinational companies.
As millennials will become the largest generation within the workforce in the future, CBRE foresees that companies are forced to re-think their workplace quality to make it capable of encouraging collaboration and innovation as well as promoting employee wellbeing.
More companies will transform their offices into agile workplaces either doing it themselves or relying on a coworking space operator to provide the solution.
Although, coworking 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 coworking space is fitted out and comes onto the market this competition will increase.
Coworking space operators complement the space provided by landlords by appealing to tenants that would not take a traditional lease and the competition occurs for larger tenants who are increasingly comparing both options when they decide to take new premises.
An article written by Pobporn Svetasobhana, a senior analyst at Research and Consulting, CBRE Thailand for Bangkok Post dated 28 May 2019.
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