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Will Coworking Businesses be the Saviours for CBD Landlords?

By July 26, 2016 No Comments

‘Coworking is set to change the CBD for good’ – was the message to guests at the launch of Generator’s latest space in Auckland’s historic Britomart district.

Generator is New Zealand’s premier coworking business club, a local example of what has become a global explosion in collaborative workspaces that give even the smallest business the opportunity to work from high quality, well-appointed spaces in the CBD.

The launch of Level 3, Stanbeth House, brings Generator’s footprint to 3,000sqm of space, with over 300 members, making it Britomart’s largest non-corporate tenant and a growing influence in the CBD commercial leasing marketplace.

Generator founder Ryan Wilson says that many landlords are yet to grasp how influential the coworking concept will become.

“With an estimated 140-150,000 sqm of new office space forecast to hit the Auckland CBD by the end of 2019 and the subsequent slowdown in absorption of that space, landlords are being forced to think carefully about how they position their assets to remain attractive to prospective tenants.

“In future, landlords may well rely on coworking to take up the slack in the traditional corporate office environment,” he said.

Wilson says that it was a mix of economic and social trends that got him started on the creation of Generator five years ago.

“The GFC was reshaping the workplace with mass redundancies driving the creation of small businesses – also the rise of the creative entrepreneurs and their desire to work together, plus the influence of Millennials beginning to emerge into the workforce bringing different working methods and new technology…

“All were seeking cost-effective workspaces that offered vibrancy and the ability to share knowledge, costs and resources,” he said.

The result of all these collaborations became known as ‘coworking Spaces’, an updated form of the member’s club – bringing a bunch of like-minded people together in a place that met their needs.

In launching Generator, Wilson instinctively plugged into this groundswell that has become a global game-changer.

“Globally coworking growth has been dramatic, growing to over 10,000 locations, and member growth an impressive 735,000 global members currently.”

Globally coworking growth has been dramatic, growing to over 10,000 locations, and member growth an impressive 735,000 global members currently, and Deskmag projections pointing to in excess of 1 million in 2017.

“The Asian serviced office market is growing at 21% per annum and China’s serviced office market is growing at 25% per annum,” says Wilson.

“Those are big numbers. And when you take into account that serviced office solutions are capable of generating 10-20% higher returns per square metre than normal office tenants, those statistics cannot be ignored,” he said.

Coworking has bred operators of all kinds, ranging from tech incubators, creative hubs and more professional environments of the Generator ilk.

Some operators such as US giant WeWork have raised massive investment funds and are spreading worldwide, recently opening in Australia – bringing their global reach to 40,000 members in 60 locations and nearly 500,000 sqm of space in total.

And the coworking trend hasn’t peaked yet, being driven by a rapidly expanding global ‘mobile workforce’ estimated at 1.3 billion people in 2013 (representing 37.2% of the total workforce), according to the International Data Corporation.

Where early members may have been SMEs, creatives and entrepreneurs, spaces such as Generator include regional offices for the likes of Facebook, Pandora, Uber and Getty Images utilising coworking offices as beachheads in new markets.

“Economic volatility has meant that business organisations of all types are experiencing rapid change,” says Wilson.

“Businesses have responded to this challenge by rethinking the way in office space is acquired and used, to cater for flexibility in employee numbers, or for rapid entry into new economic markets. All this has led to significant and growing demand for serviced offices as a substitute for traditional office spaces.

“In some cases banks and corporates are even experimenting by adding incubators and coworking spaces to their operations, partially to utilise dead space, but primarily to incorporate new talent within their walls, to cross-pollinate ideas and energy with their own staff,” says Wilson.

DigitalTrends.com recently reported that 5 million jobs could be lost in the next 5 years in the USA due to disruptive labour market changes.

And with so many of those forecasted redundancies being in administrative roles in banks, insurance companies, (the businesses that usually anchor the CBD’s biggest buildings), the CBD property landscape is set to change dramatically.

Will the tower blocks of Auckland stand empty? Or will they be built at all?

Andrew Stringer, National Director Capital Markets for global real estate company CBRE said that the main challenge for the major landlords will be getting used to having to think about the ‘c-word’ of property – community.

“The main challenge for the major landlords will be getting used to having to think about the ‘c-word’ of property – community.”

“Fundamentally the CBD is going to prevail as it is, we are still going to have high-rises and they will continue to be occupied by people who want profile and signage and want a great view out of the boardroom…

“But the other 50% of the business market needs something a bit different and that’s what a coworking business like Generator appeal to,” he said.

Stringer says that corporate landlords need to evolve and to take a chance on a few people to develop these spaces, but the current way of thinking doesn’t encourage that.

“The traditional corporate landlord is looking for long term income security and they need to get their heads around the fact that businesses need flexibility – that’s not just; ‘can I move my office from one side to another?’ it’s flexibility in terms of ‘how can I terminate my current lease and take another lease with you?,” he said.

Some corporates are trying to take a leaf out of the coworking book, utilising hot-desking to improve space utilisation, but Stringer says there is an important difference between a big company trying to build a flexible working environment and a purpose-built coworking environment.

“That’s not coworking per se – it’s just one organisation with a whole lot of people working in different styles, whereas what Ryan has created with Generator is an environment where a range of individual organisations can cohabitate and gain some real energy from the crosspollination of ideas. It sounds touchy, feely, but it genuinely is true,” he said.

“A key driver is that corporates now recognize that they need to offer more than just a desk and a phone to be a great place to work.”

Stringer says a key driver is that corporates now recognise that they need to offer more than just a desk and a phone to be a great place to work.

“I think law firms, accounting firms and banks are being challenged as to how they can attract talent – and the talent’s not just looking for a nice shiny building any more.

“Either the big landlords will need to learn to build this kind of community, or they will need to allow the coworking businesses to do it for them,” said Stringer.

And that has implications for not just the utilisation of the new CBD tower blocks, but the kind of buildings planned and how they stack up in terms of sustainability and flexibility.

“We do need all that new space; we just have to build it smarter. If we look at the stats coming through there are 70,000 millennials who will join the Auckland workforce by 2018.

“We are seeing the growth rate of the Auckland population at an all time high, so yes we will need the space, but I think we need to look at how we build that space and what it means.

“We have got to have a debate about the green elements. We want buildings that perform to high specs, that have sustainability ratings that make them world class and make them attractive to investors.

“That means making sure that floor to ceiling heights are acceptable for the type of user we are going to bring in. We have to make sure the bathroom ratio and the lift speed and the accessibility factors for people with disabilities are all taken care of to ensure that an operator like Generator can pop up at any one of these locations. Because there will be 100-150,000sqm of coworking space created in Auckland over the next five years,” Stringer said.

Lloyd Budd, director of Commercial, Retail & Operations at Bayley’s Real Estate agrees. Budd is a strong advocate for coworking having been involved with landlords across Australia and the Middle East.

“I have been fortunate enough in my career in the last few years to see coworking operations live in New York, London, Singapore and Hong Kong -Generator is up there with the best I have seen in the World and I must commend the guys here for creating this atmosphere and mirroring some of those trends we have seen globally,” said Budd.

“We as landlords and developers, talk about the fear of becoming the ‘dumb landlord’ – if you sit there and rely on large scale occupiers to fill up your space you simply won’t succeed in this changing world.

“The smart landlord sees the incubation value from coworking businesses and are making those commitments now into their spaces, particularly those with large portfolios,” he said.

Budd praises Cooper & Co for being ahead of the game in this respect, giving Generator the start it needed within the Britomart redevelopment

“I have been involved in urban regeneration projects around the world – developers really struggle to create a legitimate environment in a new development and they can become so boring. The marketing can be fantastic, but the day it opens there are tumbleweeds blowing through the retail space.

“What users of coworking spaces actually bring to new development is authenticity, a legitimacy that is lacking in those bland larger operators.”

“So in terms of the activation of space, what users of coworking spaces actually bring to new development is authenticity, a legitimacy that is lacking in those bland larger operators.

“We are currently dealing with a large scenario in New York where City Bank has 110,000m2 of space and cannot attract people to come and work for them.

“They are so desperate to attract young talent that they have now gone out to a coworking operator and said; ‘how do we get presence with you across our entire operation to attract people to come and work for us – because with our current office model, no one wants to work here?’ Budd said.

So why doesn’t the big corporate just evolve into a giant coworking space?

“I think we have got to take big business out of the old model and into Generator and not the other way round. I think that what we are going to see globally is the biggest companies in the world wanting and demanding space in this kind of [coworking] environment.

“They are going to want to rub shoulders with the kind of entrepreneurs and creatives that usually occupy these coworking environments – to learn their ideas, to leverage their energy, to really grow their business by not being in their own environment.

“To take Generator and drop it inside Westpac or Vodafone doesn’t work. But take a segment of Vodafone or Westpac and drop it (to a certain ratio) in here, it will work very well for them and the members here who get the benefit of it.

“Just recently I was working with an urban regeneration project bid for a group in Sydney, with tenants that included large banks, Google, Tesla and a few other well known brands. There was a coworking operator that was part of that bid whose job it was to anchor the whole urban regeneration community. So while they were probably the smallest user of space by square meterage, they had the biggest influence of the outcome of the place making,” Budd said.

AAEAAQAAAAAAAAhmAAAAJDNiNWIxYmUwLWE0MjMtNDY5YS1iM2U4LWJhZTllZTFkYzRiNgGenerator Founder, Ryan Wilson 

Wilson says that Generator’s success has also been an evolution. There wasn’t a roadmap to begin with and there still isn’t one now.

“The real emphasis in Generator is that we recognise that we serve a diverse community. We all like to work differently. I like to work in silence sometimes, I like to work with a bit of buzz sometimes. I like to be able to have confidential meetings. I like to be able to do a bunch of things. That psychological element drives the way we work, – we created spaces around Generator that are all different for a reason because everyone works in different ways.

“We have common areas that we refer to as ‘buzz space’ where all these different personality types can come down and enjoy the company of others, whether it’s business stimulation, or social interaction or whatever it might be, they all get to interact in a way that they are comfortable with.

“It’s a safe environment and when it gets too much, or they can’t be bothered, they can go back to their space and still have everything that they need.

“We spend a lot of time refining that understanding and that’s where we’ve got to today,” Wilson said.

Indications are that coworking has yet to hit its straps, with US monster coworking operator WeWork now in Australia. How will Generator maintain its position in the face of such powerful competition?

“The benefit that we have is that our amenities will probably be better, the environment we offer won’t be a cookie cutter environment and our people will understand our customers better… Our team, by a country mile, are the best at what they do in this particular business model.

“If we get those fundamentals right and we understand the New Zealand psyche right and continue to deliver the product that we’ve got, we will continue to be competitive.

“The reality is that every market needs a protagonist and an antagonist – that’s Darth Vader coming and we are the good guys!,” said Wilson.

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