Services as a space: co-working and the revolution of real estate

The real estate industry is undergoing fundamental shifts to reflect social change, rewriting the rulebook on how property is viewed and used. Technology has been a primary driver, enabling:

• Accessibility to services, rather than ownership of space, leading to the rise of flexible offices, co-living environments and Airbnb
• The stratospheric rise of ecommerce, leading to new forms of logistics property to satisfy last mile delivery and click and collect
• Employment becoming more flexible and the gig economy emerging, with co-working appearing in all industries

Consumers now demand flexibility, service, experience and convenience of everything they use, including property. Real estate must not just satisfy a need, but also wider aspirations, desires and lifestyle choices, for example:

• An office does not just provide a desk, but experience, collaboration and promotes work-life balance
• A shop does not sell goods to satisfy needs, but either offers experience by embodying philosophies and lifestyles to fulfil aspirations and desires, or convenience, to give time-poor consumers what they need quickly so they can get on with their lives
• A home does not just provide accommodation, but delivers a lifestyle, wellness benefits, comfort and a high quality of life

Users want vibrant, urban, livable, walkable, accessible environments where ideally all these aspects can be fulfilled

CHANGES IN SUPPLY

This has led to new ‘blended’ real estate uses to satisfy user demand and to maximise the return potential of every plot of land and building in rapidly urbanising cities. The traditional breakdown between office/retail/industrial/residential has become less relevant and the borders between uses has become blurry with hybrid concepts emerging. All permutations and combinations are now available between civic, commercial and residential uses, with the common thread that they prioritize the user, for example, co-working spaces, offices+hotels (officetel), apartment+hotel (condotel), logistics+retail, retail+residential and transport+leisure.

The Vietnamese market, especially Hanoi and Ho Chi Minh City, is rapidly adapting to this trend with co-working the most well known sector. In recent years, this segment has is exponentially grown in quantity, quality and scale with a number of local and foreign players. The market is welcoming a wave of new establishments with annual increases in users.

Main users of co-working spaces include start-ups, newly established companies or freelancers. In Vietnam, users also include local and foreign small to medium organisations and even large corporations. Co-working spaces offer their members the choice to either work independently or to socialize and exchange ideas with like-minded people. Many professionals believe such environment improves their work performances, making co-working models an increasingly popular choice for more economical and temporary office space.

In comparison to the traditional office, the flexibility co-working offers come at a price. Instead of investing a huge amount for a 3 to 5-year rental contract, tenants are offered with different payment packages with flexible time and sizes. Within such volatile business market, this can be regarded as a safer choice for young or small to medium organisations, as they do not need to pay operational fees like traditional commercial property lease.

Aside from ensuring all the basic functionality of a normal office and flexibility in pricing strategy, co-working space developers in Vietnam also maximize user experiences with other add-on services to cover electricity and water, parking fees and Internet packages. Some offer basic refreshments and even sleeping areas for free. A range of business, cultural and art event is also held on a regular basic to foster cooperation, support mutual learning and build networking and connections between users.

The potential

According to National Agency for Business Registration, in the first six months of this year, 64,531 new businesses were registered in Vietnam, a 5,3 per cent increase YoY. Co-working will undoubtedly continue to evolve to match the economic and business cycle and respond to changes in the way millennials work.

This concept has tapped into a need and will become more professional with more add-on services to match ever-changing demand. Food courts, health center or gym facilities will be embedded to promote work-life balance for users. Co-working also has a lot of room for technology application, with the basic function could be booking meeting rooms via smart phones or reserve spaces in all of co-working centers globally. Technology will assist automated workflows and operations of co-working space and simultaneously simplify the process for customers, bringing convenience and time-efficiency.

Creativity, uniqueness and exclusivity are also amongst key elements to attract users. Each co-working concept should be innovative in its interior design to bring different atmospheres that nurtures aspiration and productivity. Another option for co-working provider is to develop add-on services, which allow users to customise their rented spaces to fit with creative needs.

Investor impact

The days when investors bought a conventional asset for capital appreciation or secure long-term income stream with relatively little asset management are long gone. In a low cap-rate world, rental income streams become important and inevitably, the focus is on what occupiers want. All buildings require active management and operational experience to attract users and enhance the asset’s value.

The distinction between ‘core’ and ‘alternative’ property investments has lessened in the eyes of many investors, the new blended spaces will require the industry to adopt new business models in order to manage and react to them.

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