[+] Co-Working Throws Office Sector a Lifeline

On the surface, co-working seems the answer to the office sector’s prayers. But even after a major post-pandemic shakeup in the sector, it still accounts for less than 3.5 per cent of the office market. It raises the question—why isn’t co-working more popular in Australia? There have been setbacks, notably the calamitous crash of WeWork, which has made investors and landlords cautious about the sub-sector. As well, the pandemic sent workers in the opposite direction—home—leading to the rise of hybrid working and four-day weeks. There have also been big changes and movement at huge firms, such as PwC that this week announced hundreds of job cuts. But flexible workspace is still predicted to account for 30 per cent of the Australian market in the next 10 years and it could breathe life into struggling office assets, according to the co-founder of co-working space The Great Room, Jaelle Ang. “Post-pandemic, people want flexibility. They want to go back to the office. But they don’t want to go back all the time,” said Ang, who is also chief executive. The Great Room recently opened its first Australian space, alongside asset manager 151 Property, at 85 Castlereagh Street, overlooking Sydney’s Hyde Park. “Australia is sophisticated in the office space but co-working space has not seen depth in penetration yet, there’s a long way to go,” she says. Landlord partnerships WeWork’s slow motion collapse towards the end of last year, and the ongoing roller-coaster as its founder attempted a buyback last month , put nearly $900 million in rent payments at risk and forced renegotiations with landlords across the board. According to Ang, the industry as a whole has had to manage the benefits and challenges of the reputational impact of WeWork and has adapted its operating models accordingly. “The majority of our agreements are a partnership model. At a group level it is around 80 per cent and we have an asset-light model, which allows us to align interest with the landlord through the bad and good times. It’s really about mitigating risk. “If you have constantly high fixed rent, that ’ s a zero-sum game.” ▲ Jaelle Ang, named among Forbes Asia ’ s 25 Power Business Women 2019, sold The Great Room to CBRE-backed US flexible workspace provider Industrious in 2022. Individual Great Room-landlord partnerships differ but there is often a split between fixed and variable rent. “Australia is quite conservative in that respect—we can’t get entirely variable rent, so it makes sense to pursue something in between,” Ang says. “With fixed rent you have obviously guaranteed rent and with variable rent we’ve tried a few things and what has worked well is offering a percentage of total revenue.” As asset owners invest in upgrading their offices, co-working makes sense. “Landlords invest a lot in the amenities, end-of trip-facilities, cafes and so on. They find it harder to invest in a partnership but we’ve brought landlords along in Singapore and Hong Kong, and landlords in Australia have seemed more open to this. “We’re effectively an income-producing amenity. That’s the best way to view us.” The Australian market CBRE’s Australian Flex Space in the Age of Hybrid Work report found that flexible office space footprint increased 2.1 per cent in the major east coast markets in the 12 months to June, 2023. But 70 per cent of Australian occupiers had “minimal exposure” to flexible space and the market is dominated by larger domestic and offshore operators, counting The Great Room among them. ▲ The Great Room focuses on companies that are interested in "winning the war for talent". “We look at cities with talent density, where companies want to set up to attract that talent, and where vacancies are low and rent is expensive, because it makes sense to share, and is actually more responsible to share,” Ang says. The Great Room is interested in markets where flexible workspace is common. “We look at the local players, as well as global, as competition. And we know some things are universal: great design, high-performance design, the need for connection and an ecosystem, as well as warmth and hospitality.” The future of office As the worst performer in 2023 , the only way is up for office, and secondary assets have been repositioned and reused in attempts to combat the downturn. Flexible office providers can do the hard work in this effort towards repositioning and upgrading assets, according to Ang. “The office now needs to be multi-purpose. When I make the effort to commute, I want to have a board meeting, have lunch with friends, have casual and also deeper conversations, with colleagues and bosses but also potential new business contacts. ▲ The Great Room wants to move into more Sydney locations before expanding elsewhere. “We have to recognise the high value of work which is not done behind the computer but when you are meeting people. “The role of the office and the design of that office becomes different [because of these interactions]. “So everyone wants good kitchen facilities and, in Australia, you need not just good but great coffee, well-lit offices and there’s a love here for local art and materials. “Our job is to facilitate that meeting space as well as those collaborative spaces and spaces that focus on wellness—all of those other roles the office plays.” This co-investment in space can put the pressure off asset owners but, even more importantly, co-working space offers a fundamentally more sustainable alternative to owning big, empty offices. “While this was previously a ‘nice to have’, people are taking it seriously now,” Ang says. Its Singapore space at Afro-Asia, Robinson Road, for instance, which opened in 2021, has LEED Platinum ecological certification as well as a Green Mark. ▲ The Great Room invested in the revamp of the historic Raffles Arcade in Singapore, its first space in a luxury hotel. “This push comes from the users and then it gets back to the decision maker, people are voting for sustainability with their real estate choices. “It’s about responsible consumption. We don’t need a boardroom that is only used twice a week but we can have nicer amenities instead and only use that formal space when we need to. “As a business model, flexible space is designed sustainably already.” The Great Room has also invested in adaptive reuse and heritage reuse projects in its other locations, including at the Raffles Hotel in Singapore, revamping a former arcade on the site, as well as moving into an old Chinese medicine hall at South Bridge in the island city-state. “South Bridge is in a listed building and we’ve converted it into a vibrant community and, while it is harder work, there is a huge opportunity to convert some amazing heritage buildings in Sydney in future too.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Co-Working Throws Office Sector a Lifeline

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