Enterprise coworking set to take off in Tokyo and APAC

Enterprise coworking set to take off in Tokyo and Asia Pacific as flexible workspaces meld with corporate real estate.

Tokyo, October 2, 2017 - While start-ups and tech companies have been at the heart of the coworking culture, growing demand for flexible arrangements will be key to sustaining it. This especially rings true in Japan, which due to entrenched attitudes in seeking corporate employment at the expense of entrepreneurial verve has so far led to a lower proliferation of the coworking concept.

However, all this is set to change. As occupiers strive to contain costs in some of the world’s most expensive office locations, enterprise coworking is going mainstream in gateway markets across the region.

“As the startup scene in Japan remains in the early stages growth as compared to the rest of the region, the rise of enterprise coworking will be more relevant to fuel the adoption of coworking in Japan, starting with the legions of foreign MNCs in its capital,” said Sigrid Zialcita, Managing Director, Asia Pacific Research.

As a result, coworking spaces will continue to gain traction as an extension of corporate real estate strategy to manage real estate footprint. HSBC, for example, is estimated to have achieved cost savings of about US$1 million by renting 300 hot desks at a WeWork facility in Hong Kong.

Regus’ Spaces Otemachi opened in May, while WeWork has reportedly planned to open up to 20 coworking spaces in Japan by next year, which will include in its stops the prime areas of Roppongi, Marunouchi and Shibuya. Just over one year into their corporate programs, enterprise companies(1), according to WeWork, have grown the number of seats with them by close to five times. Among its major clients are Microsoft and Salesforce but also boast firms like Bank of America.

The region’s high rents will also continue to stoke the adoption of coworking strategies due to sustained cost advantages, as data collected and analysed by Cushman & Wakefield indicate. In some markets, coworking spaces cost less as compared to traditional offices spaces, particularly in high cost locations such as Singapore, Hong Kong, Sydney, Tokyo and Beijing.

“While memberships can cost more at coworking spaces, capex requirements can inflate the overall cost of occupying a traditional office space by as much as a third in the region’s gateway markets(2) . Tokyo’s fit-out costs are among the region’s most expensive; we estimate that occupiers there have to factor in an additional 36% of what it pays in occupancy costs when evaluating their real estate related expenses,” said Ms. Zialcita.

This cost advantage will likely be sustained as prime rents are expected to stay elevated. According to Cushman & Wakefield’s mid-year forecast, occupancy costs in the gateway cities are expected to rise on average by 5.8% from 2016-18; Excluding Chinese markets, where much of the region’s new supply will be completed, availabilities will remain tight with vacancies hovering below the 8% level.

Although Tokyo will see some instance of softening in rents, the growing weight of workplace strategies are also fuelling changes in attitudes. The rise of remote working and a more mobile worker means companies have more space than they require. At any one time, companies on average could be underutilising its spaces by over 40%. Indeed, the growth of premium coworking operators in Japan could turbo charge its coworking sector.

“Furthermore, our estimates do not include potential discounts from bulk or longer term use; the vibrancy of a coworking office also gives companies an edge in retaining and attracting the millennial workforce. These considerations cannot be overlooked even when evaluating the more costly option of a coworking private office. We believe that enterprise coworking has the potential to grow and eventually comprise 20-40% of coworking space. In addition, the concept sits well in Japan where the fostering of startup entrepreneurship remains a crucial part of Abe’s third arrow to sustain the country’s economic revival,” said Ms. Zialcita.

(1) Defined by WeWork as companies with 1,000 or more workers

(2) Beijing, Hong Kong, Shanghai, Singapore, Sydney, Tokyo