The Rise of Co-Working and Shared Office Spaces in the Philippines

KMC Solutions. Regus. ServCorp. Compass Offices. V Offices. These are just some of the companies at the forefront of co-working and flexible office spaces in the Philippines. The rise of this concept comes as no surprise - the new sharing economy is changing the way business is done across industries and the commercial real estate industry is no exception.

Co-working and Shared Office Spaces vs. Traditional Office Spaces

Unlike traditional offices, shared offices offer leases that can be as short from 6 months to 1 year, while co-working spaces offer ultra-short office leases that can be anywhere from a day to a month. These flexible spaces allow people to work independently, collaboratively, or in small teams.

Co-working and Shared Office Spaces are seen to become the future of offices, quickly emerging as fixtures in the commercial real estate market. In March 2013, Savills Australia's data shows that there are 2,498 co-working spaces worldwide, an increase of 87% on 2012 numbers, led by US, Germany, and Spain. Since then, the new office concept has spread throughout the world, including the Asia-Pacific region. According to the website Global Coworking Map, there are currently 56,669 chairs in 1,136 coworking spaces located in 655 cities in 92 countries. However, we believe that this data may be incomplete, especially in the case of the Philippines, as there are still several co-working and shared space operators not present on Global Coworking's database.

Co-working and shared office spaces are seen as the solution to bridging the gap between start-ups/SMEs and landlords. First off, it allows start-ups to maintain offices in central locations without the need of a high capital and credit quality, creating a more conducive environment for budding entrepreneurs.

"These spaces provide ample room for businesses to grow as they can expand gradually in a span of months," stated Managing Director Michael McCullough. "Capex (capital expenditure) is also really low, especially for shared office spaces because providers will include everything they need per seat."  

Next, it reduces the risk of vacancies and helps landlords maintain high occupancy and diversified tenant mix. "A large part of the strong demand for office space in the Philippines comes from the entrance of several BPO start-ups/SMEs in the country," says VP for Marketing and Landlord Representation Yves Luethi.

"Property owners, especially of premium and high-grade buildings, can find it difficult to tap this market mostly because of their stringent requirements especially on lease terms. So this is where a co-working space/shared office space provider plays a crucial role."

Through the new set-up, landlords would deal directly with the third-party provider, and these providers guarantee the capital requirement, maintain the long-term lease, and carry the risk of having SMEs and start-ups as tenants. 

"Even established firms have used co-working and shared office spaces to gauge the Philippine market and test the waters prior to moving a significant chunk of their operations to the country. " adds McCullough. 

A view of co-working and shared office spaces in Metro Manila (source: Google Maps)

The Future of Co-working and Shared Office Spaces in the Philippines

"This business model is already here in the Philippines, but it is still in its early stages, and most of the offices are concentrated in Metro Manila," says McCullough.

McCullough says that while there are big industry players who are starting to specialize in this business model, there are also a few local businesses who are already doing this to maximize their budget and keep up with the increasing real estate costs.

"They lease out a part of their office, making them a provider, and then choose to switch to an open office layout to make full use of the available space."

But is this a threat to the old-school traditional office space industry? Luethi believes that it is not.

"While it may attract millennials who want a more versatile and collaborative work environment, the main benefits of co-working and shared office spaces still remain to be about cost and flexibility."

"Landlords should see this business model as an opportunity to expand to new markets. Businesses mature and their requirements change as they progress; thus co-working and shared spaces may be ideal for young businesses now but sooner or later, they will want to move to a typical office that is exclusively theirs." 

"It will complement traditional offices, and given the current rise of the more enterprising millennial generation, we believe that demand for this type of space will also grow." 

According to McCullough, now is a good time to look into investing in co-working and shared office spaces.

"There is not much competition yet and the room to set yourself apart from others is massive. With the right location alone, you can set yourself apart from other providers."

"Your potential clients are after the value for money. You need to provide a good location and a high-grade and well-maintained facility that reflects their business and would allow them to attract the best talents."

With the abundance of upcoming supply in central business districts such as Bonifacio Global City, McCullough says investors should take advantage of this opprotunity and choose the best space in accessible locations.

"BGC alone has 300,000 sq m of new office spaces programmed to be delivered in the next three quarters, and some have already been pre-leased, though there is still availability in several notable developments."

"You may also consider setting up shop in next-wave cities outside Metro Manila, such as Cebu, Bulacan, and Davao."