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Flexibility on offer in serviced offices

Released at: 14:31, 25/11/2018

Flexibility on offer in serviced offices

Photo: Viet Tuan

Serviced offices provide a diversity of choice for tenants seeking flexible space.

by Ngoc Lan

Figures from JLL released in October reveal that Hanoi and Ho Chi Minh City now have a total of 33 serviced offices, accounting for more than 95 per cent of all serviced offices around the country. At least three new serviced offices will be launched in the two cities shortly, all of which are from foreign operators. 

As part of flexible space offerings, the serviced office concept is becoming increasingly popular and provides businesses with a solution to concerns over leasing, with popular operators including Regus, Kloud, CEO Suites, The Executive Centre, and WeWork, which will open its first space in December. 

Different concept

To compete with co-working spaces, providers of serviced offices also provide a range of additional services. Starting operations in 1999 under the management of IWG - a global operator of workspaces - Regus Vietnam now has multiple serviced offices in Hanoi, Ho Chi Minh City and Da Nang and the number of enquiries nationwide rises almost 50 per cent every year. Mr. Lars Wittig, IWG Country Head in the Philippines, Vietnam, and Cambodia, told VET that Regus has an unparalleled network of offices combined with co-working and meeting spaces for companies to use. “Such space is a creative working environment with a unique entrepreneurial spirit,” he added. “Our dynamic workspaces help you think, create and collaborate, while our team makes sure you feel welcome.”

Similarly, Kloud also combines the benefits of serviced offices and co-working spaces to create a flexible shared office space ranging from fully-furnished private office suites to hotdesks, which are available for short- or long-term lease. 

Kloud Saigon Centre Tower 2 is a premium smart serviced co-office center, offering flexible space of 2,000 sq m on the 21st floor of the office building in Keppel Land’s landmark mixed-use development. The center now hosts more than 30 companies after commencing operations in November last year. “Kloud is able to meet the supplemental space requirements of existing building tenants as well as help incubate new growth businesses before they take up permanent and possibly longer leases at office towers,” Mr. Linson Lim, President of Keppel Land Vietnam, told VET.

Meanwhile, CEO Suite currently has two locations, on the 29th floor of the Lotte Center in Hanoi and the 21st floor of Vietcombank Tower in Ho Chi Minh City. One of the greatest attractions of CEO Suite is its ability to customize services to meet client requirements. Ms. Mabel Lim, Chief Operating Officer, pointed out that co-working space is perceived by most clients as a work environment that has a lot more open space shared by individuals from various businesses, while serviced offices are an option that allows more privacy and has a lot more private office space. She added there is also a price differential between co-working space and serviced offices, with the former generally bearing a lower price tag and less services.

Mr. Stephen Wyatt, General Director of JLL Vietnam, said that in the very early stages of the flexible space market in Vietnam, the majority of co-working spaces operate as a working coffee shop or shared workspace without private rooms, with customers being individuals and startups and popular co-working operators including Toong, Dreamplex, Circo, Workyos, and UP. “Serviced offices feature an office-intensive layout that provides a more private and professional setting than co-working space,” he added. “However, co-working space now features more private rooms while serviced offices are gradually moving towards more common work spaces to harmonize common space and private rooms.”

The modern workplace

Together with co-working spaces, serviced offices are the main type of flexible space now available. Vietnam’s flexible space market is still in its early stages but is in line with the flexible space boom in Asia-Pacific that began in Singapore in 2016 and supply has soared since 2017, according to JLL.

Flexible space represents a variety of work spaces used by occupiers to increase their flexibility through short to medium-term leases, in order to reduce occupancy costs as well as enhance collaboration by moving away from the traditional concept of a cubicle-dweller work space. It also provides new services and experiences compared to traditional offices and has attracted startups, small and medium-sized enterprises (SMEs), as well as multinational companies from a diverse mix of industries such as business consultancy, investment, pharmaceuticals, fast-moving consumer goods, and e-commerce and technology.

In general, flexible space is often seen as the answer to changing work patterns that place emphasis on innovation and collaboration. The JLL report also noted that it offers a cheaper alternative and more flexible space options for companies compared to traditional concepts, because of reduced costs from sharing fit-out expenses and better use of facilities and amenities.

In traditional offices, tenants need to sign a lease for at least two or three years with space locked in. They also need to fit out that space and engage their own office manager, cleaner, and receptionist. A flexible space, by contrast, provides flexibility in lease terms, from one month onwards, with all services included. 

According to JLL’s Spotting the Opportunities: Flexible Space in Asia Pacific report, by 2030, 30 per cent of corporate commercial property portfolios could be made up of flexible space. Demand is projected to continue increasing, Small Business Labs also forecasts that the number of people in flexible space will grow globally by 380 per cent to 3.8 million in the 2016-2020 period. “This sector will play a strong role in shaping the future supply-demand dynamics by changing the way the serviced office industry works,” said Mr. Wittig.

Flexible work space penetration rate in Southeast Asia

Source: JLL Vietnam

Looking ahead

As the main customer segment of serviced offices, Vietnam’s startup community is growing quickly due to the positive economic outlook as well as increased funding from the private sector and government-led programs. According to figures from Echelon, Singapore, one of the largest online magazines for startups in Southeast Asia and launched in mid-September, Vietnam currently has about 3,000 startups; nearly double the figure at the end of 2015. “We expect these favorable market fundamentals to persist in the near term and expect the demand for flexible space to follow an upward trajectory in the future,” Mr. Wyatt said.

CEO Suite has witnessed a growing trend towards serviced offices in Vietnam in recent years. Ms. Lim said this growth is the result of higher demand, with an influx of foreign investors and a preference for fully-furnished or managed space among new entries. 

However, the diversity of product models creates both opportunities and challenges for investors when deciding on appropriate project development options. Similar to flexible space in Vietnam in general, serviced offices are confronting two main constraints: space and tenant retention.

A quarterly report from CBRE revealed there was no new Grade A and B office supply in the first nine months of 2018 in either Ho Chi Minh City or Hanoi. In Hanoi, remaining vacant Grade A space continues to be absorbed, leading to a 4.7 percentage point (ppt) year-on-year decline in vacancy rates. As at the end of the second quarter of 2018, the average vacancy rate in Grade A buildings in Hanoi was 6.2 per cent; the lowest since 2010. In Grade B, given the competitive rental rates, vacancies in Grade B fell significantly, by 4.6 ppts year-on-year to 11.4 per cent. In Ho Chi Minh City, the report noted that the vacancy rate for both Grade A and B were below 5 per cent. “With limited availability of Grade A and B office across the city, operators need to consider shop houses or newly-completed retail space as alternative options to setting up flexible work spaces,” Mr. Wyatt said.

Additionally, some short-term tenants often shift to newer spaces. Startups are established and operated primarily by the young generation, while many young people around the country don’t feel any special attachment to their organization, according to a report on a survey on Vietnam’s Generation Y released in late 2017 by the Navigos Group. Therefore, Mr. Wyatt explained, flexible spaces are currently upgrading their offerings. However, “as long as workplace users continue to benefit from collaboration and are able to develop connections with other users, they will be less likely to move to other newer options,” he believes.

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