Disruption continues to shake up the office sector

A growing number of office landlords are looking to implement flexible workspace innovations in their buildings as increasing competition from the coworking sector reshapes tenant expectations, a new report finds.

Colliers International’s Fixed-Term and Flexible Workspace Report, which looks at New Zealand’s latest office trends, highlights disruption in both the fixed-term and flexible office sectors.

Research and Communications Director Chris Dibble says landlords and fixed-term tenants cannot afford to dismiss the impact of coworking.

“New Zealand’s flexible workspace sector is expanding, evolving and broadening its services to become an important component of office market demand,” he says.

“The flexible workspace sector has doubled in the past three years, and our forecasts show this will double again within the next five years.

“In Auckland, flexible workspace facilities occupy only around 1.6 per cent of current CBD office stock. However, by 2023 this proportion is forecast to increase to 2.7 per cent.

“This is likely to be a conservative estimate, given the anticipated growth in new smaller operators entering the market in the next few years.

“Changes in the structural make-up of our workforce and the introduction of a 5G mobile network potentially in 2020 will boost the sector’s importance and attractiveness well into the future.”

Dibble says the rapid ascendency of coworking is putting pressure on traditional fixed-term landlords to adapt.

“To counteract the elevation in flexible workspace popularity amongst staff and occupiers, landlords of fixed-term space are incorporating more flexible workspace initiatives into their buildings and portfolios.

“Ranked highly amongst these initiatives is the ability to deliver a collaborative aspect and feel to the premises by incorporating new software and employing community managers to connect staff with landlord intentions and building operations.”

Dibble says activity-based working practices, green ‘biophilic’ environments and bespoke zones are among the flexible working strategies that fixed-term tenants have adopted.

However, many organisations still have massive periods of idle desk use, with some organisations Colliers has surveyed suffering up to 45 per cent vacancy periods.

“Data-driven occupation strategies are rising in popularity amongst landlords and occupiers to more quickly and accurately optimise office space usage, identify space for bursts of high utilisation, as well as boost staff productivity and wellbeing.

“Although technology is driving greater understanding in this area, privacy and data ownership remain key points of contention.”

Disruption is also having an impact outside of traditional office environments.

“Considered an office sector disruptor, the flexible workspace sector is being disrupted itself as its popularity grows and operators and landlords focus on their customers’ needs,” Dibble says.

“This has meant the sector continues to evolve, especially as the division between coworking, serviced offices and buildings with vertically integrated community environments are all becoming more closely aligned.”

Dibble says the tenant mix within flexible workspaces is broadening.

“Tenants of all sizes and industry focus are looking to take advantage of the sector’s ability to foster innovation, ideas, creativity and productivity.

“Increasing the popularity of the sector in the future will be Millennials, who have a greater affiliation with flexible workspace trends and are on the cusp of becoming the largest generation in the workforce.

“They will drive the perception of office environments and operating models to satisfy their need for a better work and life balance in a more immersed and connected world.”

Dibble says the emergence of a 5G mobile network capability in New Zealand potentially by 2020, with a thousand-fold increase in mobile speeds, creates new opportunities.

“This will enable an almost unlimited amount of new opportunities for people and businesses to explore, but also elevate the connection between home, work and community experiences.”

Auckland will continue to lead the sector in flexible workspace operator numbers and occupied space due to its scale, population and employment growth, density and member access.

“As the sector grows in scale and age, operators and landlords are looking at different flexible workspace models,” Dibble says.

“Two prominent models that have emerged include the ‘flex and core’ and the ‘city campus’ styles of operations.

“These assist tenants in their quests to appropriately service existing and new geographic locations while allowing flexibility in expanding or contracting staff numbers.

“Community at scale along with geographic presence is where operators are unlocking the growth opportunities and outperforming landlords with limited dispersed geographic presence.”

Dibble says most new major office buildings will now incorporate flexible workspaces in some capacity as landlords look to take advantage of the sector’s growth potential and avoid the fear of missing out in capturing new sources of tenant demand.

However, one of the main reasons holding the sector back from faster growth rates is the low levels of vacancy and high levels of rental growth, reducing available options.

Currently, there are around 117 flexible workspace facilities covering 85,545sq m across New Zealand.

The majority are located in Auckland (40), followed by Canterbury (23) and Wellington (14).

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