Shared office space blog

Is shared space the cruise line of the property industry?

04 June 2020, by Daniel Longmire

Both are great fun, cost effective and you may just get to meet someone new! However, post-Covid-19, do we really want to be in close contact with a bunch of strangers?

Cruise industry

In 2019, the cruise line industry was booming, carting millions of people annually to every part of the globe. The spectacular decline of the industry induced by Covid-19 has arguably been underpinned by what made it so successful in the first place – a concentrated level of amenity, a curated and seamless experience run by an overarching operator, surrounded by people pursuing similar interests. 

Now and into the foreseeable future, travellers have no appetite for shared facilities with hundreds of others, having little-to-no control over their experience/environment and certainly no desire to be surrounded by people – regardless of whether they’re like-minded or not. 

Shared space

We got to thinking… this sounds a lot like shared office space! While not a relaxing tropical holiday, the shared space industry fundamentally shares – and was built upon – some of these characteristics, raising the question: Is shared space the cruise line sector of the property industry? 

Shared space has exploded globally in recent years (WeWork being one of the great international examples), transitioning from a quirky outlier focused on start-ups to a multi-billion-dollar industry targeting every segment of the occupier market. 

While slightly behind its peers, New Zealand is no exception to this shift with a diversified mix of local and international operators all offering their own takes on a style of working that’s reshaping the office landscape. In 2018, we highlighted the rapid rise in the popularity of shared space across New Zealand and, in fact, our Auckland office has operated out of the Generator in Britomart for nine years! 

At this same time, the real estate research houses in NZ were starting to add shared space to their metrics, with one researcher estimating in 2018 that the shared space market accounted for ~85,000sqm of space nationally in NZ, a number which has grown annually and will jump further when projects already underway exit the development pipeline. Another predicted that by 2030 commercial property portfolios across Asia Pacific could be comprised of up to 30% flexible space, recording a 300% increase in the Auckland footprint between 2014 and 2017 alone. 

Or maybe not! With the arrival of Covid-19 to our shores earlier this year, is the shared-space model positioned to deal with the ‘new normal’ of social distancing, a shift away from shared amenities and a rise in working from home?

How has overall demand for shared space been impacted by the virus? In theory, it’s much easier to control health and safety procedures in your own office than within a shared space full of other tenants and an overarching operator who sets the rules. Similarly, companies will be reprioritising and cost consolidating – something that could be both a risk and an opportunity for the shared space industry. 

Does shared space still have a future?

Historically, demand was driven by drawcards that traditional office couldn’t offer. Flexibility of desk count and lease terms, collaboration with similar businesses, premium locations and price point, all lured in occupiers. Firms were able to grow (or shrink) without committing to rigid lease terms on a set amount of space, while simultaneously getting great facilities and sometimes hotel-level amenity. 

Will these drawcards remain popular in a post-Covid world? Disruptive events like this tend to accelerate trends already in existence and, while shared space providers and occupiers alike are adjusting to new precautions, demand isn’t going to disappear overnight. Organisations still want the benefits that come from collaboration with like-minded firms and individuals. They still want a workspace that aligns with their culture and company values. Workers still crave the social interaction and feeling of community that shared spaces do so well. A mass exit back to the one-firm one-office model is unlikely, as many factors that originally drew in occupiers are still alive and kicking. 

While occupier interest may not overwhelm the market, flexibility will inherently drive demand. There will inevitably be some that sour to the idea of sharing space with other businesses. However, many firms will now be looking to the future with uncertainty and focus will shift to how they can mitigate risk. 

Banks and economists are painting a reasonably bleak picture and being locked into a fixed amount of space for the long term at a predetermined rate is fast losing its appeal. Flexibility reduces risk and the shared space industry has this at its core. The shared space model implements premises consolidation most effectively.  

In addition, working in lockdown has made many firms realise that working from home is not only achievable, but also functional and productive. The main aspect firms can’t create at home is the social and physical interaction. 

As firms may look to consolidate space and move to a permanent, partial WFH arrangement, shared space providers are well-positioned to cater to this market. Tenants are able to maintain a physical presence where they can have meetings, events and enable interaction while simultaneously decreasing their overall footprint. 

Employees no longer need a quiet space in the office to concentrate as this is something they can achieve at home. They need a space to collaborate and interact and that is where shared space providers are able to offer real value. 

On a square-metre basis, shared space comes in at a much higher rate than its traditional counterpart. But why? Other than covering the cost of amenity across a much smaller NLA, the extra cost effectively ‘buys” flexibility. Greater flexibility is about compromise from both parties and means heightened risk for a landlord, which ultimately has a fiscal cost. Combined with no capital outlay for fitout or furniture and no makegood brings the overall cost of occupancy to a level comparable with a traditional office. 

Sink or swim?

TwentyTwo’s Auckland team is back on the ground in Generator and, while quiet at first, the space has slowly come back to life. While not humming, the site we occupy doesn’t feel like a tenant departure of ‘cruise ship’ scale has taken place. Casualties from the lockdown appear, for now, to be minimal with a majority of tenants returning to work in a shared space rather than working from home.

As a result of the wider drivers in play and our own hands on experience, we sense the shared space sector is unlikely to suffer the same fate as the cruise line sector. 

Changes brought on by the virus will impact how we interact with each other, how we work and where we work, but shared space remains well-positioned to accommodate this for two key reasons – flexibility and human nature.

The shared space industry has swept the globe and has been one of the largest disruptors to the commercial property market in recent times. To continue on its upward trajectory, the industry will need to pause, rethink and then adapt to the new world of social distancing and changing tenant requirements. 

Many tenants will now be looking at their office requirements and be subsequently re-evaluating what they need moving forward. 

TwentyTwo are helping a number of occupiers evaluate their property and workplace strategies and assessing their shared space, fixed office and all other property needs to ensure they are able to adapt to a fast-changing, post-Covid world. 

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About the author

Fan of a G&T and a good platter. Travel obsessed (budget permitting). Loves getting outdoors on a bushwalk or the boat. Documentary addict.

Dan joined the TwentyTwo team at the end of 2019, bringing with him five years of experience in the commercial property market.  Based in Auckland, he has a passion for data analysis and using that information to help clients make better property decisions.  Dan provides our clients with advice and insights on the commercial property market; needs analysis/briefing, stay-go decisions, new leases/lease renewals, rent reviews, portfolio management and a wide range of issues associated with managing large property portfolios.

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