Members work on laptops in a common room at the WeWork offices in San Francisco. Banking on the co-working leasing market potential in Hong Kong, the company leased 93,000 square feet on nine floors in a commercial building in Causeway Bay last year. (MICHAEL SHORT / BLOOMBERG)

Shared office space has emerged as a major form of office leasing activity in Hong Kong, and is set to disrupt the mainstream commercial real-estate services industry.

The trend has exerted pressure on both landlords and tenants to start learning to accommodate the latest mode of office leasing business.

Spaces — a shared-office operator brand-owned by International Workplace Group (IWG) — is making its debut in Hong Kong’s co-working leasing market, renovating the entire block of Sun House in Central with 77,000 square feet that’s due to be completed in mid-2018.

In a market where net demand growth has been thin, the arrival of co-working space operators represents a welcome source of new demand for the leasing market

Paul Yien, Hong Kong markets regional director at JLL

The company has also committed itself to renting 40,000 square feet of space at Lee Gardens Three, Causeway Bay, which is targeted to open in the second quarter of next year.

The co-working space operator will refurbish the area to create a humanized working environment, combining different elements and flavors and enabling tenants to focus on their work and get connected to a web of business networks in one location. However, it will not provide business coaching services to tenants.

“Hong Kong is set for the new working style, emphasizing lifestyle, diversity, mobility, flexibility and connectivity and we’re happy to take in Hong Kong,” said Margot van der Poel, Spaces’ Middle East and Asia-Pacific brand manager.

“We are a global co-working space operator brand which acts locally,” she told China Daily.

Spaces will levy different price tags to cater to different leasing needs of tenants — ranging from startups which join as members to established companies which rent a few floors of the co-working office.

The co-working office operator said it’s optimistic about expanding its business footprints in the city besides the Central and Causeway Bay locations despite fierce market competition.

“Hong Kong is a major commercial hub and regional business activities are thriving. We see the pie getting bigger,” said Henry Saliba, Spaces’ Asia, Middle East and Africa corporate development managing director.

“Land cost is less important to us. Rather, it’s more important for us to allocate the right demand at the right location and at the right price point. We believe that Spaces’ co-working leasing brand can create flexible workplaces to minimize costs for our tenants,” Spaces’ Asia-Pacific vice-president of development, Nigel Barnes told China Daily.

Contrary to traditional office settings, co-working spaces are characterized by multi-function rooms, event spaces, outdoor terraces, breakaway areas, food and beverage provision and amenities that can provide a homely feeling, plus a lively working atmosphere.

Traditionally, startups like to rent co-working premises to access networking, mentoring and fundraising opportunities. Now, even multinational companies (MNCs) are taking advantage of the greater flexibility, convenience and savings created by leasing co-working premises.

Shanghai-based naked Hub made its splash in Hong Kong’s co-office leasing market in July this year by leasing 16 floors with 55,000 square feet to provide a flexible working environment in an office building in Sheung Wan. It plans to open up 10 more co-working offices in the city by the end of 2019 to serve up to 10,000 individual clients and hundreds of businesses.

Naked Hub has also embarked on an acquisition strategy by buying Singaporean peer company JustCo in July. The combined footprint can sprawl its co-working space networks to a gross floor area of 140,000 square meters under management in Asia-Pacific countries to satisfy office leasing demand of 8,000 companies and 32,000 members.

“In a market where net demand growth has been thin, the arrival of co-working space operators represents a welcome source of new demand for the leasing market,” said Paul Yien, Hong Kong markets regional director at Jones Lang LaSalle (JLL).

“As most Grade A offices in Central may be beyond the reach of co-working space operators, the impact of these new market entrants will be felt more in Grade B offices and office markets outside the Central district. Landlords may also consider bringing co-sharing office operators into their portfolios to help broaden their tenant base,” JLL’s Head of Research Dennis Ma pointed out.

As more co-working businesses flock to Hong Kong’s commercial properties, the impact on the office leasing market has become increasingly prevalent. Last year, US-based peer company WeWork leased 93,000 square feet on nine floors in a commercial building in Causeway Bay.

According to real-estate research firm CBRE estimates, co-working space operators may lease 1.27 million square feet in Hong Kong’s office buildings by the end of this year — a hefty increase of 154 percent over 2013.

154 percent, the projected growth in co-working space by this year-end from that of 2013

There is a bundle of business considerations luring MNCs to rent flexible workspaces, with cost savings cited as a driver, followed by leasing flexibility and access to a collaborative working environment that fosters creativity, entrepreneurship and innovation.

Limited availability and strong mainland corporation demand have pushed Hong Kong to become the world’s most expensive office location in accommodating staff, according to Cushman & Wakefield’s latest research released last month.

“We expect more multinational corporations to place specific departments within flexible workspace. Digital, innovation and technology teams would be most likely to move into these spaces,” predicted Jonathan Wright, Asian regional tenant representation associate director at Colliers International.

“Co-working spaces allow MNCs to be more flexible when expanding or contracting their operations, especially as the leasing term can be much shorter than the traditional three-year terms,” asserted Dane Moodie, office advisory and transaction services director at CBRE Hong Kong.

“We expect leasing demand to be underpinned as more players enter the market, including landlords who are eyeing this sector as an alternative revenue stream and a source of conventional office tenants,” noted Keith Hemshall, Cushman & Wakefield’s Hong Kong Office Services head.

The vibrant growth of flexible workspace leasing activity is anticipated to lead to a turnaround for Hong Kong’s office leasing market and those overseas.

Landlords are advised to closely examine how leasing terms with co-working space companies are structured, such as whether rents should be paid under a profit-sharing mechanism or at market rates. Industry pundits reckon that the leasing model should be closely monitored in Hong Kong and in other office leasing markets.

In addition to providing a flexible working environment, co-working space companies could offer potential value-added services such as real-estate facilities management outsourcing, office design and workplace strategy advisory.

Some Asia-Pacific property developers have been lured into operating their own co-working spaces to capture the new market potential.

All these changes in the office leasing market are banking on the projected growth of the global co-working space leasing industry. Co-working centers around the globe had already expanded 30 percent in 2015 and 22 percent in 2016, respectively, according to Deskmag’s 2017 Global Coworking Survey.

oswald@chinadailyhk.com