The growth in the market will be driven by growth in IT and Finance Sector as they major occupiers of flexible workspace in China. The IT sector and Finance sector in China have been growing with a rate of 27.4% and 7.5% respectively in 2019.
It is expected that during the forecast period 2019-2025F, flexible workspace market in Chengdu, Guangzhou and Hong Kong on the basis of supply will grow with a CAGR of 15.1%, 15.1% and 14.4% respectively.
Emergence of new regional players such as Hi-Coffee in Chengdu and Compass Office and Garage Society in Hong Kong are driving the supply of flexible workspaces in these cities.
It is expected in the coming years; companies are going to shift their focus from rental to non-rental revenue streams such as Business Concierge, Accounting, HR, payroll and Task Management services and others in order to bring profitability and sustainability in business. This in turn will drive the demand of flexible workspaces by enterprises and MNC's to save costs or provide mobility for staff.
In-Organic Growth: Flexible workspace operators with heavy financial backing have been following the strategy of mergers and acquisitions in order to expand their regional presence. For instance, Ucommune has acquired 6 flexible workspace operators in 2018 and WeWork acquired NakedHub in 2018 because of which it expanded to 23 new locations in China.
Increase in Enterprise Demand: There has been a rise in demand of flexible workspace by enterprises that are looking for customized office solutions on flexible terms. Enterprises are following 'hub and spoke' model wherein the corporate head office acts as a hub and flexible workspaces act as spokes.
Movement from Asset Heavy to Asset Light Model: Flexible Workspace Operators are shifting focus from lease model to asset light model such as joint venture revenue sharing with landlords, franchise model and management model. Companies such as Ucommune and MyDreamPlus promote asset light model and loss making SOHO 3Q sold 11 asset heavy locations and plans to expand using the asset light strategy.
Rising real estate cost, Growing Gig Economy and Growing Entrepreneurship, Fluid Business Strategy, Influx of Foreign Companies and Increasing Number of Start-Ups led to the emergence of flexible workspace market in India. Market consolidation is currently taking place at a slower pace and the operators are venturing into new geographies including the tier 2 and tier 3 cities. The supply in India Flexible Space market has been growing at a double digit CAGR by space during the period 2016-2019. The market has been growing with the competition being fragmented owing to the presence of more than 300 flexible workspace operators in the industry.
The period of 2013-2016 was marked by a steady stream of supply be it office spaces, retail spaces or residential properties, owing to increasing GDP and FDI into Vietnam. As the demand started slowing down, the government enforced a major regulatory change to the real estate law in Vietnam, with a new regulation named the "Housing Law", which allowed for foreign nationals to be able to own, rent and lease property if they had a stamped entry pass port and were not individuals entitled to preferential treatment or diplomatic immunity. As a result, it reduced the demand-supply gap. From 2017 and onwards, the total number of international players in each respective sub market increased. Newer segments such as condotels, housing societies, co-working spaces, smart and green buildings emerged. As the per capita GDP rose, the spending power of the people also rose thereby, resulting in rising rental rates and property prices and the market becoming more competitive. Young couples, IT & Finance Companies, high comfort tourism became the upcoming target markets for various real estate sub sectors.
UAE's real estate market is currently in its mature stage. The period during 2013-2016 was marked by a steady stream of supply, owing to the increasing GDP and increased demand in the market. Heightened rents led to a decrease in demand due to lacking affordability of the citizens and expatriates during 2014-2015. After the 2014 oil shock, the government has been actively attracting Foreign Direct Investment and expatriates to the UAE in order to diversify its economy away from oil generated revenues. The UAE Government launched the "Vision 2021" plan, for the economic and social development of the country. From 2017 and onwards, the total number of international players in each respective submarket increased. Newer segments such as townhouses, and co-working spaces, smart and green buildings gained traction in the market.
The flexible workspace industry in APAC gained traction during the time frame 2016-2017 when the global market leader WeWork expanded in multiple geographies. The supply in the industry has been drastically growing during the period 2016-2019. The industry has been evolving ever since its inception, with major trends in the industry being growing number of local players, changing amenity mix or amenitisation, increasing market consolidation, development of premium design workspaces at premium locations and increasing landlord participation.
The Saudi Arabia real estate market was in crisis earlier due to the shortage in housing spaces, lack of mortgage law, decline in the oil prices and other factors. This has led to implementation of the first mortgage law in 2012, along with various government initiatives over the years. The government introduced various schemes such as Vision 2030 for increasing the foreign investment in the Saudi Real Estate Market. The main focus of government in this was to increase the presence of affordable housing for the Saudi people. In 2016, REITs were listed on the local stock exchange with the aim of increasing increase real estate contribution to GDP from 5% to 10 %. The year 2018 was witnessed to be a period of alteration in the entertainment sector of the Kingdom. It was a key part in the Vision 2030's objective to enhance and diversify the past entertainment in the area. In line with this, the government announced various new reforms such as a new online visa scheme and other reforms to increase the tourism inflow in the region.
Ken Research Ankur Gupta, Head Marketing & Communications [email protected] +91-9015378249