This article first appeared in City & Country, The Edge Malaysia Weekly on June 5, 2023 - June 11, 2023

The outlook for the co-working market segment is mixed. While it was affected by the lockdowns imposed during the pandemic, it quickly regained strength as businesses looked for greater flexibility as the world transitioned to the endemic phase.

The segment saw the consolidation of several co-working operators, in particular those that were smaller and underperforming. Some operators have expanded their range of products, providing spaces with various price points and quality to meet the needs of different businesses.

Some of the co-working operators in Malaysia are Common Ground, Colony and WeWork. The companies have expanded in different ways. Colony, for example, started the affordable co-working space Jerry in 2021.

Common Ground, meanwhile, merged with two co-working brands — Hong Kong-based the Hive and Australia’s The Cluster. The three brands now come under the umbrella of The Flexi Group, which currrently has 45 locations in 12 cities and nine countries in Asia-Pacific.

The main draw of co-working spaces is flexibility as it enables organisations to stay nimble and scale up or down, depending on their business needs and market conditions. This flexibility is especially attractive to start-ups as they do not have to invest in heavy capital expenditure (capex) to set up an office.

Knight Frank Malaysia executive director (office strategy and solutions) Teh Young Khean reckons that this agility offered is also attractive to established businesses looking to expand on a project basis or are experiencing rapid expansion.

“This will allow businesses to hire and allocate office space swiftly, taking into consideration their budget, time and space,” he says.

JLL Property Services (M) Sdn Bhd country head Y Y Lau notes that while the demand for co-working space is traditionally driven by start-ups and small and medium enterprises, there has been a shift in the trend.

“We have been seeing corporations starting to drive demand. Size requirements can vary, with some of these corporations typically taking up small spaces within co-working spaces as a swing space or setting up short-term project offices for temporary project teams,” she explains.

“We understand that demand for co-working spaces has remained robust post-pandemic. One lesson most companies took away from the pandemic was the importance of flexibility in their working arrangements. Flexibility has always been a core USP (unique selling proposition) of co-working spaces and in the current market where tenants are cost-conscious and agile, flexibility has become a core consideration when it comes to their real estate portfolios.”

Advantages of co-working spaces

Demand for office space, including co-working space, has returned after the pandemic as employees go back to the office. This is because compared with traditional office space, co-working space is a quicker and more flexible solution.

Knight Frank’s Teh reckons that most organisations now prefer a more flexible office space as this option offers low entry cost, better cost management and the flexibility to expand or reduce space as and when the need arises.

“With that, key co-working operators are experiencing a resurgence with further expansion expected. We have also observed an increase in [demand for] enterprise solutions among MNCs (multinational corporations) as an alternative solution to conventional spaces — a testament to the adaptability of co-working spaces for conventional businesses,” he explains.

This flexibility includes multi-location membership access, which enables members to explore the viability of hybrid working in the future.

According to property consultants, the other advantages of co-working space include the facilities and amenities available, ready-to-move-in office space, lower costs and bespoke product offerings with the enterprise solutions option.

Knight Frank’s Teh explains that tenants will continue to look for better office locations with facilities such as a collaboration area, nap pods, games room, quiet corner as well as nursing room as employees’ mental well-being has become a priority for employers in the post-pandemic environment.

Property consultants add that co-working also allows businesses to expand or move offices with less cost and hassle.

“As most organisations would likely want to preserve their cash flow especially during this time of uncertainty, a cost-friendly office is indeed one of the key criteria when selecting an office space,” Teh says.

JLL’s Lau adds that co-working spaces create a collaborative work environment.

“Given the current working culture and styles, there is a huge focus on collaboration,” she says.

Enterprise solutions, or enterprise deals, are the latest product offered by co-working operators. Targeted mainly at large companies and MNCs, these solutions involve operators designing and managing office space exclusively for one tenant.

An example is a deal signed last year between Colony Space Asia Sdn Bhd and integrated car e-commerce platform ­Carsome for 41,860 sq ft of office space on four floors at KYM Tower in Mutiara Damansara, Petaling Jaya, Selangor.

The space houses Carsome’s expanded headquarters, built and managed by Colony. Carsome has been one of the anchor tenants at Colony@Mutiara Damansara since 2019.

This six-year deal is described by Colony as the biggest in Malaysia’s co-working industry.

Knight Frank’s Teh expects the enterprise solutions model to continue to be in demand as it is a one-stop solution for members, complements the standard co-working model and offers a longer-term perspective for clients.

“It provides occupiers with a medium- to longer-term solution, customised to their own branding and identity. This is ­[enhanced] by the added benefits and services of a co-working space,” he says.

JLL’s Lau notes that demand for this service has been relatively strong, with several international companies opting for it. “As we understand it, this is a growing segment and is another driver of co-working space demand.”

Nevertheless, as co-working spaces typically have multiple tenants, privacy and security are a concern.

“As businesses grow and develop their own identity, they may appreciate their own space to develop a stronger branding for themselves,” says Teh.

Lau notes, too, that co-working spaces may be more expensive in the longer term, compared with traditional office spaces.

“Although tenants are saving on capex, there are additional costs associated with such spaces such as paying for internet connectivity and for utilisation of office equipment such as printers,” she explains.

Based on the Knight Frank Asia-Pacific Outlook 2023 report, Teh says that the co-working sector will continue to grow steadily. “Locally, we expect a more sustainable growth of co-working spaces. Operators will look to secure pre-committed take-up or enterprise solutions to minimise the risks [associated with] new centres.”

Lau highlights that while the segment will continue to grow, it is important to take the current economic uncertainties and global headwinds into consideration.

“We note that globally, it appears that the sector that is struggling would be the services sector, as several companies are reporting mass layoffs. These are the companies that make up the core target market for co-working spaces. Thus, co-working spaces could actually see their potential growth moderated by this.”

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