Space as a service: The convergence of hospitality and retail in coworking
Jul 16, 2019
As the sharing economy comes of age, more business operations are mobile-enabled and greater consideration is given to the social impact of work, coworking space is rising up the ranks as an attractive asset class for long-term investors.

While flexible workspace in Australia – the world’s sixth fastest-growing coworking market – is currently concentrated in and around the office towers of downtown Sydney and Melbourne, industry insiders suggest the most significant opportunity may lie beyond the CBD and across a range of real estate contexts.

Having broken free of its 1990s hackerspace origins, the coworking industry has redefined the workplace as an experiential environment where educational programming, entertainment facilities, wellbeing services and hospitality are as integral as super-fast WiFi and collaboration spaces. While global coworking providers extend their tendrils into new settings and territories, the operators of malls, gyms, hotels and transport hubs in the US and Asia are also moving to capitalise on the new interface between work and leisure. In other words, there is much to command the attention of the Australian commercial property sector.

Adam Heathcote, Portfolio General Manager – Hospitality and Strategic New Business at QIC, says: “We’ve been carrying out a strategic analysis of the coworking industry and having frank discussions with local market leaders over the past 18 months, and what we’ve garnered speaks to more than just the future of retail real estate – it speaks to major societal change and value shifts.”

Tipping point

Following the arrival of WeWork in Australia in 2016, 2017/18 marked this country’s first considerable boost in flexible workspace supply (incorporating coworking and more traditional serviced offices), as well as a notable increase in the average amount of space being rented from 2.4 to 3.2 desks. Globally, ‘flexible’ space now accounts for around 20 per cent of the office market and - fuelled by the rising status of millennials in the workplace and the freelance economy - is expected to grow to 30 per cent by 2030. 

Coworking not only appeals directly to the digitally fluent, entrepreneurial, values-driven workers growing up in the ‘post-ownership’ era through the work-life balance and interdisciplinary collaboration that is promotes; it also appeals to employers as a weapon in the perks-based war for talent. Uptake of coworking is expected to continue as those deinstitutionalised millennials who cherish liberty, sociability and accelerated serendipity become business leaders, with the year 2024 widely billed as the official changing of the guard. Improving data security technology, and the upfront cost savings associated with shared space, meanwhile, is encouraging major corporations to leverage coworking space for project teams. 

Australia’s identity as a nation of small businesses provides a strong foundation for the coworking industry, with small and micro businesses accounting for more than 40 per cent of the total workforce. According to ABS data for 2017/18, around 70 per cent of employing businesses consist of fewer than five members of staff while sole traders make up two thirds of all businesses.

The growth of the services industries, which permit untethered working in a way that manufacturing-era jobs do not, goes some way to explain why a 2015 survey by jobs marketplace Upwork found that around a third of Australians perform some form of freelance work. More than half of respondents in the same survey claimed they would not return to a traditional nine-to-five office job if given the choice.

Heathcote adds: “Candidates today are looking for employers that offer more than just a place to work, employers are looking for more than just hotdesking solutions, and the smart real estate operators among us are looking at coworking space as more than a bolt-on or backfill. We are viewing our properties through an entirely new lens when considering the optimal location for a cowork amenity.”

Co-location with retail and the suburban dream

While coworking space first came into focus for QIC when envisioning the 80 Collins development in Melbourne’s CBD, a raft of new data has now shifted the spotlight to the retail portfolio. Bearing in mind that aggregators such as Office Hub cite a higher rate of enquiries for spaces with plentiful carparking and railway links, QIC’s shopping centres are already a step ahead of most venues within the financial reach of new and small business owners.

When Jones Lang LaSalle released the first study of coworking in US retail properties last August, it highlighted a significant opportunity for operators of mid-tier malls in the suburbs, not least because millennials are increasingly moving out of the urban core to start families. The same month, Macerich inked a multi-mall partnership with workspace operator Industrious. The traction garnered by coworking concepts in retail environments is cause for excitement in itself – the JLL study predicts coworking will cover more than 315,000m2 of US retail property by 2023 – and the relative vitality of Australian shopping centres amplifies this. “QIC’s strategy of sustained investment has resulted in our centres here, all in key growth corridors, being far better positioned than many US malls to harness the coworking opportunity,” says Heathcote.

He continues: “Aside from the sturdiness of Australia’s economy and population growth rate, our town centres are less car-dependent than in the US and we know that walkability, public transport access and proximity to amenities are crucial factors for coworking space users.” On top of this, Heathcote adds, the global giants of coworking are not yet making a play for Australia’s suburban dollar, meaning average desk price is less volatile and churn rate lower than we see in the CBD.

In 2017, the University of Sydney’s Coworking Spaces Australia study identified 35 per cent of coworking sites outside the economic hubs of capital cities and made the ‘surprising finding’ that regional centres along the east coast figure highly. The report attributes this to the growing number of professionals seeking a sea change that allows them to reclaim time spent commuting to the city without being confined to a lonely home office.

Dissolving the borders between work and play

What is clear is that coworking has segmented and evolved to include more holistic offerings as it has moved into new settings. While we typically picture a telework hub or startup incubator centre, coworking sites can also take the form of bazaar-style showrooms for fledgling retailers, industry-specific spaces equipped with specialist kit such as 3D printers, or a hybrid of all these.

As the 2018 Asia Pacific Flexible Workspace Outlook Report by Colliers International outlines, coworking operations within major shopping destinations such as Hong Kong’s Causeway Bay and Beijing’s Pacific Century Place now adjoin, or come complete with, everything from cafes and childcare centres to sleep pods and swimming pools. The mingling of wellness, retail and coworking hit the headlines earlier this year when US gym franchise Equinox announced it would offer flexible workspace not long after a pay-as-you-go coworking spa opened in New York’s Hudson Yards retail complex. According to Architects’ Journal, developers are now factoring facilities such as deskside ‘room service’, pet-friendly zones, beauty salons and lecture theatres into their designs for coworking spaces, while the wellness strategy of London-based coworking operator Uncommon recently called for a five-metre ficus tree to be craned into its flagship space.

All this seems to place mixed-use developers such as QIC ahead of the game, since a masterplanned shopping centre offers the coworking operator all manner of hospitality, health, beauty and professional service providers as potential collaborators. By the same token, the daytime energy and ‘captive audience’ delivered by coworking offers new opportunities for retailers across a range of categories. In an effort to ‘connect its members with the rest of the world’, WeWork even launched its own retail concept in January. Heathcote says: “We’ve now seen a number of proof points in terms of the scale and content of retail-based coworking, but it is the industry’s alignment with our goal to bring life to our centres and grow local economies that is perhaps most exciting.”

More than 20% of retail-based coworking space in the US is located within malls, and a further 17% in mixed-use developments. (JLL, 2018)
Homeground advantage

“By enabling people to work where they live, we allow them to be more invested in their local community and to spend more time with family, friends and neighbours,” continues Heathcote. The sense of belonging and improved self-perception that coworking lends those who have previously worked from home should not be underestimated, he suggests, nor the opportunity to better understand the way that knowledge flows through a space.

The potential of coworking spaces to accelerate the growth of small businesses, by enabling users to share ideas and leads as well as hosting professional development events, chimes well with QIC’s mission to support vibrant neighbourhoods. Inspiringly, this is the energy being tapped by local operators such as Perth-based Spacecubed (known for incubating innovation in underserved communities) and Victorian-based Clik Collective (which offers co-warehousing for emerging retail brands). The demand for convenient meeting and training rooms among existing shopping centre tenants should not be overlooked either, as evidenced by the clientele of the Waterman Business Centres in outer Melbourne.

Of course, certain hurdles exist to integrate a coworking offer into an established retail asset. Heathcote explains: “The main challenge is the size of the floorplate and abundance of natural light required by coworking operators, but this is where our human-centric design comes into play. The externalised design of the hospitality precinct at Eastland and currently in development at Watergardens, for example, is all about maximising natural light,” he adds.

Having established a baseline footprint of 3500m2 to accommodate 500-600 daily users, and thereby foster a genuine community, the next question is how big a coworking space can afford to be. The five-level, 11,000m2 B:Hive development opened in Auckland last year may portend what is possible locally. When it comes to predicting accretive value, the million-dollar question is whether the end user will be an existing or new customer of the shopping centre.

Properties which might not be strongest on paper in retail terms can also be top of the crop for coworking providers. “When you consider factors such as domestic migration rates and look for design features regularly requested by coworking space users, our smaller Queensland properties quickly rise up the list,” explains Heathcote.

A new degree of comfort

Following capital raises by a number of coworking operators, active asset managers can now step in to curate locally relevant offerings and broker relationships with complementary businesses such as childcare providers. “Imagine the mental wellbeing gains we could make in our communities if we enable working parents to lunch with their children or take some of the stress out of returning to work after time away,” says Heathcote.

According to recent research by workplace tech firm Condeco, Australian employers are as likely as their US counterparts to offer remote working, with staff retention and responding to employee demand among the top reasons for doing so. Heathcote adds: “Most projections don’t even take into account what will happen when large enterprise and public sector employers begin decentralising their operations and incorporating remote solutions into their return-to-work policies; we’re only seeing the tip of the iceberg right now.”

Catering to the ways and places in which people wish to work is an open-ended project, but one which community-based retail and lifestyle centres may be uniquely qualified to fulfil.