With millennials forming an increasing proportion of the office workforce and employers across the globe having a tough time finding talent, the co-working sector has emerged as a key growth driver within the office market, with some major corporates seeking to accommodate 30% of their total staff in co-working environments.
Insight
Blog Post: The Trend of Co-Working Spaces in Dubai
As the market for flexible space grows and matures, we expect the nature of the space provided to evolve from traditional serviced offices to more open plan ‘co-working’ solutions.
- Ben Johnston, Associate, Offices & Business Space
We’ve already seen how new business models that cater for people’s needs and preferences like never before have disrupted retail and hospitality. It was only a matter of time until office space had its own catalyst for change – one that addresses companies’ desire for more flexibility while putting the focus firmly on the human experience of the workplace, and brings with it profound implications for occupiers and investors.
Flexible offices (available on a short basis involving commitments of less than one year) currently account for around 8% of total office stock in Amsterdam and around 5% in London (700,000 sqm). By contrast, the market is tiny in Dubai, with less than 70,000 sq m (accounting for less than 1% of the total office stock). Dubai has been slow to adapt the new co-working trend, primarily due to the restrictive regulatory framework and complex licencing regime associated with it. The majority of the emirate’s large free-zones currently offer their own flex-space solutions and have placed restrictions on third party operators entering these key markets, thereby further limiting the growth of this sector.
We are, however, seeing these restrictive parameters gradually being relaxed, resulting in an influx of new operators to the market and a significant new appetite from global co-working players. Also, with stakeholders becoming further educated as to the potential higher returns achievable from co-working, we are seeing increased demand for joint venture and management style arrangements. At present, JLL are in negotiations with operators seeking to open 4-5 centres this year, with another 4-5 planned in 2020. The areas vary, but a typical requirement is in the range of 2,000 to 4,000 sq m.
This short term demand is however only the tip of the iceberg. If Dubai were to follow the example of London (with flexible offices accounting for around 5% of the total stock of office space by 2022), then we could see as much as 80,000 sq m of such space being added to the market each year over the next five years. In reality, future growth is likely to be more limited but will still be in excess of the European average of 30% per annum (which would represent a total of more than 30,000 sq m being added to supply each year).
As the market for flexible space grows and matures, we expect the nature of the space provided to evolve from traditional serviced offices to more open plan ‘co-working’ solutions. In more mature markets, many operators are effectively offering ‘hybrid models’ - a mix of private offices and open spaces, which caters not only to freelancers, start-ups and SMEs, but also, increasingly, larger organisations. This is a model we expect to be the fastest growing sector of the market in Dubai.
The concept of flexible offices is definitely here to stay, with Dubai set to experience a major boom in this space over the next five years. Those offering the best blend of an atrractive business model and ideal physical environment are sure to thrive and make the most of this opportunity.