Growing sector

I remember those days when I was renting an office building unit. I had a choice between a home office and an office away from home, but I opted for the latter. I was excited about the prospect of putting a huge signage outside the building with my company’s name on it, having employees, office tables, computers, filing cabinets, you know, a physical office and everything that goes with it.

For start-ups, especially the micro and small ones, huge fixed costs put an unnecessary strain on the business. They are called fixed costs because they are costs that are independent of output. This means that even if I am not producing anything or my business is not making money, I still have to pay the rent every month. But it is not only office rent that I have to worry about. I also have to pay electricity and other utility bills, employees salaries and wages, etc.

To cut the long story short, my attempt at doing business back then failed because as a sole proprietor, my business was starting to drain even my personal funds. I wasn’t going to let that happen. And so I closed down the business.

Nowadays though, start-ups and even established ones, especially those that have a small or even mobile workforce, no longer have to be burdened by high fixed costs.

In a recent report, Colliers International noted that the tight Metro Manila office market, coupled with the emergence of a mobile workforce and firms’ drive to bring down operating costs and provide flexibility to their employees, has given rise to another office sub-segment called flexible workspace.

Manila flexible workspace is actually divided into two categories: serviced and co-working; and hosted services.

Colliers describes serviced office providers as pioneers of flexible workspace and provide the most fundamental services such as redundant internet connection, secure uninterrupted power supplies, and option to rent desktop and laptop computers. This segment covers 71,000 square meters or 21 percent of the total flexible workspace supply in Metro Manila. Major operators include Regus, Compass, Servcorp, and CEO Suite.

According to the report, these providers are capturing new multinational companies (MNCs) that are expanding and conducting due diligence on the Metro Manila market. The government’s plan to relax foreign ownership restrictions on the construction and retail sectors should also encourage more foreign firms to set up office in the country. These companies are likely to start operating in the country through global serviced office providers, it said.

Co-working space, meanwhile, encourages tenants with similar interests to collaborate in a shared working environment. Targeting start-ups and freelancers, co-working space’s share to total flexible workspace stock is about 11 percent or around 38,000 sqm. Among the co-working space providers in Manila are Clock-In and Launchpad. A key foreign co-working space operator is Common Ground with clients from various sectors including non-outsourcing companies providing marketing, logistics, finance and accounting firms, the report said.

The serviced and co-working sector grew by 30 percent annually in terms of stock from 2012 to 2017. Colliers expects this segment to grow at the same pace per year from 2019 to 2021 on the back of a rising number of start-ups, a growing share of millennials to the country’s workforce, and MNCs that seek to provide flexibility to their employees.

On the other hand, Colliers said hosted services differentiate themselves by offering back office, non-core services such as information technology services, human resource staffing, and accounting. These additional services help tenants focus on their core businesses.

Hosted services have the biggest share of flexible space at 231,000 sqm or 68 percent. Among the hosted service providers in Manila are Anthem Solutions, Sales Rain, and Figari. Colliers expects this category’s growth to hinge on the continued influx of higher-value knowledge process outsourcing (KPO) firms that provide health information management (HIM), software engineering, and shared back office services that require plug-and-play offices. This sector rose by 15 percent per year in terms of stock from 2012 to 2017 and the report projects between 10 percent and 20 percent growth per annum over the next three years.

Colliers, in its report, expects Manila’s flexible workspace stock to expand by at least 10 percent per annum from 2019 and 2021 due to the continued rise of micro, small, and medium enterprises (MSME); the influx of MNCs and outsourcing firms looking for plug-and-play offices; and the implementation of a set of policy reforms likely to improve the Philippines’ business climate. The segment’s growth should be supported by the improvement of the country’s information technology (IT) infrastructure, especially with the entry of a third telecommunications player which has committed itself to improving broadband connectivity nationwide, it added.

It pointed out flexible workspace is no longer a disruptor, nor a complementary sub-sector, to the office market, but rather has become a fundamental part of commercial real estate and a sector in its own right. 

In the third quarter of 2018, Colliers recorded flexible workspace supply at 339,000 sqm, up 14 percent from the 298,000 sqm, and accounting for about 3.2 percent of the total Metro Manila office supply. This is projected to reach 3.5 percent by end-2021.

Colliers International Phils director for office services Maricris Sarino-Joson believes that operators should cash in on the rising demand for flexible workspaces by partnering with developers to carve out co-working space within malls, residential condominiums, hotels, and worker dormitories that will be built within Metro Manila.

She added that large flexible workspace operators should consider partnering with officials of second-tier cities that are viable outsourcing destinations and that the project teams of outsourcing firms could start operating in co-working facilities in these cities where they could train college students that the BPOs could tap in the future. Among the most attractive second-tier cities for BPO operations are in Cebu, Bacolod, Iloilo, Clark in Pampanga, Laguna, and Davao.

She said that tenants, on the other hand, should look for flexible workspaces that have an ecosystem that would allow occupants to collaborate with other firms, adding that companies with mobile and client-facing sales teams should also consider leasing out co-working space.

Colliers also pointed out that flexible workspace occupiers looking for new and high-quality workspace should consider newer flexible workspace in major buildings in Ortigas, Makati CBD, Fort Bonifacio, and Rockwell Center.

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