The race is on to position serviced offices as hip co-working spaces, but questions remain about the sustainability of market demand.
The Executive Centre in Taipei’s Nanshan Plaza feels like a lounge on the club floor of a five-star hotel. Office workers dressed to impress chat casually, seated on quirky designer furniture. Floor-to-ceiling windows offer sweeping city views. A dedicated barista whips up Earl Grey lattes at the coffee-and-tea bar.
There is conventional office space, too – individual offices and meeting rooms – but it’s set farther back down the corridor. The showcase here is the nifty appointments and extra services. TEC’s clients, many which are in the technology and financial sectors, “want more value and flexibility from their office space,” says Carrie Chuang, the company’s City Head.
Indeed, the global co-working space boom has arrived in Taipei. It’s the sharing economy for the corporate world: Bland cubicles are out and chic communal facilities are in. The market is red-hot, accounting for 20% of Taipei’s commercial leasing in 2019 and helping to drive office vacancy to an 18-year low of 3.3%, according to real-estate services consultancy CBRE.
Vying with TEC for control of this market are Regus, another established serviced-office provider, as well as the U.S. startup WeWork and Singapore’s JustCo, which entered Taiwan last year.
“Last year flexible working spaces started to have a major impact on the Taiwan market,” says Ping Lee, CBRE Taiwan’s head of research. “The incumbents are adopting their business model, creating what they call ‘enterprise solutions’ to stay competitive with the new entrants.”
While flexible-working spaces initially targeted startups and freelancers, their market demographic is broadening to include big corporations. The interest of Fortune 500s and other large firms in co-working spaces here has led the operators to seek out the capital’s top office buildings, such as Taipei 101 and Nanshan Plaza. TEC’s tenants in Nanshan include Google and the British hospitality company IHG.
“As we have seen in all major markets in the world, a new working style is coming to Taiwan,” says Shingo Nishioka, chief executive officer of Regus Japan and Taiwan. “Companies expect more flexible, cost effective, and productive workspaces for their employees. At the same time, workers expect a more creative, motivative, collaborative, and mobile working style.”
Corporate expansion and demand for flexible working spaces drove average monthly office rental rates up 3.7% annually to NT$1,902 per ping (US$18.85 per square meter) in the third quarter of 2019, according to real-estate services consultancy Colliers. Rent in the Xinyi district, where TEC, Regus, and WeWork all have locations, increased to NT$2,395 per ping. Grade A buildings in Xinyi were even costlier at NT$3,350 per ping, roughly 75% higher than the Taipei average.
One reason large firms are warming to flexible working spaces is that they can be cheaper than traditional long-term leases under new global accounting standards. Effective January 2019, International Financial Reporting Standard (IFRS) 16 requires that property leases be placed on-balance sheet by recognizing a lease liability and “right-of-use” asset.
Renting a co-working space, however, can be declared as an expense and not a liability. “Companies are attracted to the cost savings,” says CBRE’s Lee.
Co-working spaces offer ways to spread out costs, too. Companies can defer the payment of furnishings, which would be impossible in a traditional office where office furniture must be purchased up front. Co-working spaces allow their clients to pay for furnishings on a monthly basis as part of a “membership fee,” Lee observes.
While some big corporates are using flexible working spaces, the concept is still associated more with plucky tech entrepreneurs. The reason is simple: Most large firms still prefer dedicated office spaces of their own. Although costs can be higher, they are less burdensome for established companies than for startups or freelancers. At the same time, big companies can design their own facilities in a contemporary way that appeals to younger workers.
Cultural preferences are an issue, too. Jamie Chang, an assistant manager at property consultancy Jones Lang LaSalle in Taipei, notes that “hot desking” – the practice of not assigning workers to specific office desks – has yet to gain traction in Taiwan, despite its popularity with some companies in the West (see the accompanying article in this section for more on office design trends).
Flexible working spaces are suitable for certain large firms when there’s a cultural fit, Chang says. “Some large tech companies want to inspire cutting-edge creativity in their workers, so an unconventional office space is desirable. But many companies aren’t like that.”
In fact, Taiwan’s largest firms are unlikely to choose flexible working spaces. Local tech giants like Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, have huge campuses of their own. TSMC’s corporate headquarters are in the Hsinchu Science Park.
In the financial sector, the big players are also major players in the real-estate sector. Firms like Cathay Financial and Fubon Financial own a large amount of prime real estate that they can use for their own office space.
Some observers remain optimistic about the future of flexible working spaces in Taiwan. TEC’s Chuang expects that the market will continue to grow this year based on strong demand for Grade A office space in Taipei.
Regus plans to open another center in Neihu by the end of the year. “We are very keen to find more partners to work with – landlords, developers, investors – with whom we can accelerate our growth speed in the future,” says Regus’s Nishioka.
Multinational companies will continue to drive demand for serviced offices and co-working spaces, says CBRE’s Lee. “While the cost here in Taipei is not cheap, it’s reasonable by global standards,” she says.