The co-working theme will be heard loud and clear in UAE’s real estate

Future occupational demand across global real estate markets is changing dramatically, in large part due to the digital age and its impact on how businesses plan, communicate and operate. Success in the digital age is about creating customer-centric services and flexible solutions, not the simple provision of fixed and standard products.

Neither occupiers nor landlords are immune to this transformation. Workplaces themselves need to reflect changing corporate constitutions, with occupiers under pressure to create flexible, more collaborative environments.

In turn, occupiers are placing more claims on landlords, fuelling the space-as-a-service model in global markets, exemplified by the recent explosion in coworking spaces.

Recent estimates suggest that there are almost 18,000 coworking spaces around the world, accommodating almost 1.7 million workers — representing growth of 3,500 per cent and 8,000 per cent respectively, since the start of this decade.

Indeed, the growth has been so startling that lettings to coworking operators have become the mainstay of many global leasing markets. The widely known co-working operator, WeWork, is now the largest private occupier of office space in north London and Manhattan.

With WeWork and other coworking companies expected to launch and expand in Dubai and the GCC, Knight Frank has explored the impact a move in this direction could have on Dubai’s commercial real estate.

There are three types of arrangements that generally fall under coworking space — pure coworking, executive suites, and flexible office space.

Pure coworking is an arrangement where independent contractors and employees of different companies work in a shared space and share everything from amenities to ideas. These tend to be in free zones and create clusters of like-minded companies.

Executive office suites are home to employees of different companies working in the same space, but in most cases there is little interaction among members. Executive office suites often provide basic amenities like printers and copiers, but tend not to provide networking and community aspects.

Flexible office space is an arrangement where a single tenant hires a company to house and manage its office needs, including finding and customising space, and then operating and managing that space.

According to the Knight Frank “Your Space” report, 76 per cent of corporate real estate leaders reported that the amount of collaborative space in their business had increased over the last three years, while 60 per cent said that the utilisation of co-working space had increased.

Looking forward to the next three years, 80 per cent of global occupiers plan to increase the amount of collaborative space in their business and occupied portfolio, while 69 per cent will increase their use of co-working space. Almost half said they anticipated taking “enterprise” co-working space for large (50 plus workstation) requirements over the next three years.

So, what’s the attraction? More than half said the number one appeal of co-working was “flexibility”, but others cited “community”, “speed to becoming operational” and “workplace design” as the key benefit.

These models also enable the occupier to align the amount of space they take from the operator with their precise business needs, right down to a workstation level. This negates the need to hold expensive, under-utilised space to support future expansion and is in marked contrast to conventional space procurement, which results in significant financial costs and/or penalties for occupiers that need to give back space.

Looking forward

In the US, the growth of flexible office space has been transformative in the commercial real estate market, with many asset owners and brokerages either acquiring coworking firms or creating their own similar models to capitalise on growing demand.

Asset owners are even exploring various avenues to enter the coworking space, potentially by offering their own coworking spaces directly to tenants.

Many tenants are finding coworking and flexible office space to be viable options, as those tenants collaborate with their brokers to identify a tipping point between the rent premium charged for coworking or flexible office space and the additional flexibility those formats provide via shorter lease terms.

In Dubai, this is often a great solution for international companies that require additional office space for special projects, which may only last one or two years.

However, coworking potentially faces challenges due to the emirate’s free zone system, which places restrictions on businesses operating outside of the free zone in which they are licensed. These have already been opened up for some free zone businesses, such as in DIFC, where a dual license is now possible.

Even as I write, changes are afoot that signal more viable appealing options are becoming available for those that want to do business in the emirate.

At the end of January, Emaar released its Park Ridge apartments at the Dubai Hills community in Mohammad Bin Rashid Al Maktoum City, which marry flexi-desk licences into a residential concept. The concept is quite straightforward — property owners or tenants benefit from multi-year business licenses and can base their residences and offices within the same building or vicinity.

This will be a game changer for the growing number of freelancers and start-ups in Dubai, which require a cost effective way to operate in the emirate.

We see this move as positive; another step towards attracting top talent to live and work in Dubai, reinforcing our prediction that ultimately, people and knowledge will drive the next transformation in Dubai’s commercial sector.

Matthew Dadd is a Partner at Knight Frank in Dubai, where he heads the Commercial division.