One of the major decisions every business has to make is whether to lease or buy office space. With co-working growing in popularity, leasing is becoming an increasingly popular option.
The average lease for big corporates is two to three years, and 12 months for smaller companies. A major benefit of co-working spaces is that their model is flexible on lease length, allowing clients to expand their office space as their business grows and changes.
This helps businesses do away with workspace management and instead enjoy cost savings, networking opportunities and flexibility to scale up or down their workspace as required.
All of these opportunities provide benefits to a business that simply would not be available if they were to purchase their office space. Co-working is a sustainable and innovative alternative, with a big appetite for it in the current property climate.
The growth of the co-working sector
Co-working only makes up about three to four per cent of total commercial real estate, but this number is growing. Landlords are serious about co-working – they’re looking for disciplined companies that understand the co-working business model and are focused on delivering outstanding results.
Every new major development has an element of co-working, and landlords typically set aside around 30 per cent of their building for co-working as they understand that it’s a sustainable type of tenancy.
The co-working business model is asset-light, allowing flexibility and scalability. Having a large-footprint model – with a “magic number” of about 7500 square metres – lends the ability to create private facilities for individual clients.
By building a large and dense community network, businesses can fully harness the benefits of co-working, including networking opportunities, cross-pollination of innovation and ideas between large corporates and start-ups, shared office resources and more.
The current office market
There is demand in Sydney and Melbourne for flexible workspace solutions due to tight vacancy and high rents around the CBDs.
Companies now require co-working services to meet short-term surges in office demand without signing longer leases. At the same time, tenant’s demand in the Melbourne and Sydney CBD continues to gain traction on the back of solid employment growth.
It is clearly a landlord market, where tenants find it difficult to find spaces which meet their requirements and at the conditions which allow them enough flexibility to grow or scale back when needed.
The few landlords who have offered flexible space have done so mostly as an option to their existing tenants, for example for additional meeting space or cafes, but have not fundamentally changed their model of ‘long leases’, ‘no fit-out’, ‘no service’ tenancy agreements.
But when you find the right space, the market needs an established operator with a high level of workspace management expertise, technology capability and hospitality excellence.
The scale of global co-working operators such as JustCo Australia is a critical differentiating factor when comparing what’s currently available in the Australian market. Whilst the typical serviced office centre in Sydney averages around 900 sqm, JustCo’s first Sydney centre is over 3,700 sqm. These larger sizes allow co-working providers the ability to offer a wide range of options to members, from smaller hotdesks to an entire floor designed for enterprise clients.
Anna Maras, Director of Property at specialist consultancy TM Insight says, “Businesses are being forced to think short-term as the number of future variables increase. Often, CEOs are finding it challenging to forecast out five years, and with real estate being a divertive of business performance, flexibility is essential, especially with contract-driven organisations. This is where co-working is providing a valuable platform for organisations to review their workplace strategy, allowing for any change to workplace footprint to be accounted for in co-working or flexible spaces.”