Article | Intelligent Investment

Why Australia’s flexible office market is seeing a growth resurgence

International operators now see Australia as a mature flex market offering growth potential

November 10, 2023

The image shows colleagues discussing a project in a co-working space.

In a time of fluid workplace dynamics, traditional office space is facing increasing pressure of becoming obsolete. While the hybrid work model and concept of four-day work weeks take headline precedence, another mode of work is also quietly gaining traction in Australia – the flexible office.  

Defined as a flexible workspace with an environment which allows employees to work in a variety of settings and typically on variable lease terms, the resurgence of the local flexible office market can be attributed to numerous factors in the current employment landscape.   

“Evolving workplace dynamics have triggered the need for flexible space operators to rethink their offerings to remain relevant and appealing in a post-pandemic world,” explains CBRE’s Asia Pacific Head of Flexible Real Estate, Sidharth Dhawan.  

“These offerings vary by tenure and customisation, ranging from ‘gym pass’-like day memberships on the one end, through to full turnkey managed spaces on the other.  

“International operators now see Australia as a mature flex market offering growth potential and some are actively looking at opportunities, particularly in prime grade buildings.” 

CBRE’s latest data from the Australian Flex Space in the Age of Hybrid Work report revealed that the country’s flexible office market footprint increased by 2.1% in the major east coast markets in the 12 months to June 2023.  

This figure, alongside broader supporting statistics, is indicative of early signs of recovery as local and offshore operators grow their footprint and occupiers target higher flex space usage.  

This broaches the further questioning of:  

  • Why is this happening
  • What today’s innovative flex space operators are doing differently  
  • What CBRE’s experts are observing in this burgeoning space  

Decoding tenant attraction and satisfaction  

According to CBRE’s Australian Head of Office Research, Tom Broderick, office landlords are strategically embracing the evolving working dynamics by exploring innovative solutions such as flexible office spaces and third spaces within their buildings.  

“This shift is driven by the changing preferences of tenants and the recognition that providing adaptable and versatile work environments can enhance tenant satisfaction, attract new occupants, and ultimately add value to their properties,” he explains. 

Lawson Hubbard is a Director in CBRE’s Advisory & Transaction Services specialising in office occupiers. From an occupier standpoint, he highlights two core reasons why Australia is seeing a flight towards this type of workspace.  

“It gives them some flexibility within their portfolio, allowing them to grow and contract at shorter periods of time than a traditional lease would provide. 

“In a traditional lease structure, you're locked in for three to ten years. This might be your core employment base, but what employers find attractive about a flex base is it allows them to grow or contract 10% to 20% of their portfolio relatively quickly. Whether it's inside or outside of the building, they can form partnerships with providers to allow them this flexibility.  

“The other point that occupiers find attractive is when they're entering new markets or markets where they have a small number of people. This gives them a global presence and an office in these locations without having to fully manage a lease.”  

Understanding the market sentiment 

With extensive oversight across the Asia Pacific region, Dhawan is well positioned to shed light on the present uptake trends around flex office spaces. In Australia specifically, his observation is that the market has already had enough momentum to sustain flex demand in the CBDs of major cities like Sydney and Melbourne. 

"We’re seeing this momentum now sustain in the fringe as well,” he says.  

When it comes to the market’s potential for further growth, Dhawan isn’t shy about leaning towards the prediction that flex office space proliferation is only in its early stages here. 

“A good indicator of a growth-to-be-had is the percentage of flex space as total office stock in a market – the average between Sydney and Melbourne here is 3.1% of total stock. For comparison markets like Singapore and London, these are upwards of 6%, indicating more potential in Australia even when accounting for different market characteristics and tenant profiles. 

“One of the biggest differences would be that Australia is one of the few markets in APAC to offer Tenant Improvement Allowance as part of the lease package, hence a prime motivator of moving to flex workspaces - avoiding capital expenditure (CAPEX) spend is less relevant in this market.  

“The continuing uptake is a clear indicator that the model has other advantages such as flexibility of term, acquisition lead time, optionality of location, provision of meeting or third space, and agility of portfolio - and occupiers are seeing more value in these aspects of the mode.” 

Even against the popularity of hybrid work models, Hubbard is convinced about the sector’s potential.   

“I'd say the demand has increased. The primary reason for that is the tenants are looking for more flexibility within their leases, and they're also looking for real estate as a service.  

“What flex providers do is offer a single cost or charge to provide everything including catering, meeting rooms, conference rooms, printing, IT, electricity, concierge and building outgoings – essentially real estate as a service. For the flex providers, that's their bread and butter.” 

What tenants demand in flex workspaces 

There’s a clear demand for A-grade or premium grade buildings within the CBD markets across Australia. 

“I think it's almost a prerequisite now to have a flex provider within these buildings,” says Hubbard.    

“Because the types of tenants within these buildings are sophisticated, they need those amenities. It’s what attracts them to the building regardless of whether they use them.” 

This flex space offering has certainly changed drastically post-Covid. Prior to this, most flex workspaces were simply a serviced office environment. Today’s flex office spaces act more like third spaces for tenants.  

“They’re a lobby or extension of the landlord's building. I think the need is that it's almost a part of the building's makeup now,” says Hubbard.  

And who are some of these new tenants seeking out these premium flex workspaces? That can range from larger tenants though to smaller companies with under 10 employees looking for a CBD outpost.  

“I think the flex market has seen an increased demand for smaller offices. A lot of those companies are high growth, so they don't want to take a lease for three or five years. And they can grow within these sorts of facilities relatively quickly.” 

What smart flex workspaces are doing differently 

There’s also plenty of work being done on the flex office side in a bid to capture this new cohort of sophisticated tenants in Australia. 

“All flex spaces are increasingly amenable to accommodating client requests,” says Dhawan.  

“Across the board we’re seeing increased comfort with customisation requests. But if we need to get more granular, flex offices which were intended to add to the amenity profile of a prominent development, on average, are taking more measures to accommodate tenant requests and to increase occupier stickiness with the overall ecosystem and not just the flex space.” 

Specifically, flex space landlords are driving trends such as ESG on the broader front and improved connectivity for work efficiency.   

“Taking a more singular focus, the sector is focusing heavily on increased network availability to complement hybrid working. As more businesses push for employees to use offices more to promote collaboration, flex spaces are looking to provide easier access for all employees. We’re also seeing a lot of demand for meeting or town hall space as well as third spaces.” 

The Work Project is a premium flex office operator with established spaces in Hong Kong, Singapore and Australia. They believe that the secret to a successful long-term space comes down to location, design and service.    

“For The Work Project, we always start with partnering with the right building and landlord. Then followed by a great layout and design that plays to the strength of the building and its location. In today’s work environment, providing customised solutions to support the different needs is also very important,” says The Work Project’s Brandon Chia.  

He emphasises these key trends that have changed the sector: 

  • The increased requirement from enterprise clients with demand for more customisation 
  • The rise of hybrid work that requires flexible terms 
  • The proliferation of video conferencing as a mainstay of communication which demands more private phone booths and video conferencing facilities 

The Great Room is a similar upmarket flex workspace which is set to make an impressive impact when it officially opens its Sydney doors in early 2024.  

With an interior design that could double as the lobby of a luxury hotel alongside its ethos of ‘hospitality-inspired coworking’, understanding what businesses and people value is paramount according to its Australian General Manager, Josh Alfafara.  

“We believe Australia is a sophisticated and developed market for flexible workspace and the needs of tenants are discerning. 

“The Great Room offers a more holistic space in which to conduct business – a place to gather, create and innovate rather than just get things done.”  

In the real world this means:  

  • Desirable high-end amenities that help businesses attract, engage and retain employees 
  • Offering enterprise-grade technology and connectivity 
  • Providing 24/7 office access alongside shower facilities  
  • Actively engaging with members to host weekly breakfast clubs, networking drinks, and exclusive business learning and lifestyle events 
  • Providing dedicated meeting and event spaces 

“The dynamics between flex spaces and landlords are also evolving,” adds Alfafara.  

“Instead of being passive tenants, The Great Room has transitioned to exploring a more collaborative partnership business model with landlords. This shift allows both parties to share the benefits of their collaboration.”  

Who the tenants are 

For the team at The Work Project, tenancy consists mainly of professional services across financial, recruitment, legal and technology sectors. 

Given its expansive footprint across Singapore, Bangkok, Hong Kong, Europe and the United States, Alfafara has an even more detailed overview of tenancy make up across The Great Room’s offices.  

“Our members represent a diverse range of businesses, including long-established multinational companies, entrepreneurs, startups and sole traders typically from various industries.  

“These include financial and investment management, technology, real estate and property services, asset management, venture capitalists, fintech, creative agencies, professional services, law firms, and start-ups. 

“An interesting trend we’ve noticed is that traditional industries such as law firms are increasingly embracing the concept of coworking spaces as part of their space planning strategies,” he adds.  

“Consequently, a growing number of multinational corporations and mature companies are exploring coworking options.” 

Forecasting the flex office sector’s future 

CBRE believes that the flex sector remains integral to occupiers’ office strategy. This sector is capable of: 

  • Supporting a distributed workforce  
  • Delivering premier employee experiences  
  • Building flexibility into their portfolios 
  • Mitigating uncertainty around future office utilisation 
  • Avoiding capital expenditure 

The flex business across operators is doing well, with margins that are high enough to offset current levels of vacancy and occupier turnover. Since the Covid-19 pandemic, flex operators who pivoted to asset-light models, in particular, have shown strong results. 

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