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An alternative to traditional office space, the flexible office market – made up of both serviced offices and co-working spaces – is expanding rapidly across the world with 23% average annual growth since 2013, according to Stanlib research.
According to a 2018 report by PwC, flexible workspace accounts for around 8% of global office space and is expected to rise to 30% by 2030.
These fully equipped and furnished serviced offices and co-working spaces, complete with quality amenities, are especially attractive to occupants for their flexibility in costs, short-term contracts and even multiple-location use.
In South Africa, there’s also a rising number of players, with large global operators Regus and WeWork having a local presence.
The market is largely driven by entrepreneurs and small businesses looking for flexible and cost-efficient working spaces.
Although not yet a trend in South Africa, large corporates too have been embracing the flexible office environment, especially in cities like New York and London.
In fact, according to Cushman & Wakefield, central London is the global leader in flexible workspace, representing 4% of the area’s stock.
In the UK capital, WeWork is the major tenant.
“Of the leases signed in London over the last year, 20% has gone to flexible office space,” says Keillen Ndlovu, head of listed property funds at Stanlib.
During the Bank of America Merrill Lynch conference in March, WeWork – worth an estimated $47bn – was cited as the most valuable office landlord globally and the biggest office landlord in New York, London and Washington DC.
Listed property follows suit
In the listed property sector, flexible workspace is a small but growing part of portfolios.
“The flexible workspace model is one that many listed companies around the world, including in Europe, the US and Australia, are including in their strategies,” Ndlovu tells finweek.
JSE-listed RDI REIT reports that London serviced offices continue to trade ahead of expectations.
The real estate investment trust’s (Reit’s) four serviced offices in London comprise 10% of its total portfolio.
The flexible office sector, estimated to be worth between £16bn and £19bn in the UK, is estimated to rise to £62bn by 2025, according to Cushman & Wakefield research.
Although there is no official data at present in South Africa, Ndlovu estimates that flexible office space is at around a minimum of 1% of the local office sector. However, he is convinced it is going to pick up.
“It’s a sector that cannot be ignored. Especially given that it is an environment that houses many small businesses,” he says.
SA’s listed property sector continues to expand its flexible workspace footprint, primarily through partnerships with flexible workspace operators.
The country’s two largest Reits already have a presence in this lucrative and growing market.
Workshop17, which is 50% co-owned by SA’s largest Reit, Growthpoint Properties, added two new co-working spaces in Paarl and Rosebank, taking its locations to four, including 138 West in Sandton and the V&A Waterfront.
Three more are planned with one, at Growthpoint’s 32 on Kloof development in Gardens, Cape Town, soon to open.
Andrew König, CEO of Redefine Properties, the country’s second-largest Reit, says the company is focused on positioning the portfolio to capitalise on the shared workspace trend.
Redefine Properties already has exposure to four of the larger co-working businesses: Flexible Workspace, The Business Exchange, Regus and, more recently, WeWork with whom it has concluded two 15-year leases in Rosebank and Sandton.
WeWork is now the primary tenant at Redefine’s iconic Rosebank Link, and in September its lease commences for 10?000m2 of 155 West Street in Sandton.
This article originally appeared in the 6 June edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
