Why rent an office when you can share space?

By Milliam Murigi

Unlike before when running a company or business meant having a permanent office, today you don’t need one. An increasing number of firms are joining co-working communities.

How people work has evolved and so, too, have places of work, both in terms of buildings as well as office space. Interestingly, with or without money, you can get space to get your work done. Young entrepreneurs are taking advantage of coffee shops, which offer free Internet, as others flock to serviced offices, which are affordable and more reliable.

According to Knight Frank’s Kenya Market Update First Half 2019, the serviced office sector has recorded fast growth over the last few years. This is due to new, shared workspace entrants and demand from Small and Medium-Sized Enterprises (SMEs), maturing start-ups and multinationals. 

The increased interest is due to the flexibility that comes with serviced offices in comparison to traditional offices. The serviced offices allow organisations to co-share, have flexible lease agreements and office space, lower operating costs and the opportunity of being located in a prime address. 

While these changes are driven by start-ups which cannot afford hefty rents as well as buying the required equipment, demand also arises from established businesses. “One no longer needs to be restricted to an office desk to get work done,” says Ben Woodhams, Managing Director of Knight Frank Kenya,  a real estate consultancy firm. 

Another report dubbed The Evolution of Offices by Broll Property Intel, says a growing world population, limited land in urbanised cities and company consolidations have been the reason stand-alone, brick and mortar office buildings are no longer the preferred choice for many. And the evolution is set to continue.  Broll Property Group offers commercial property services in all major cities and towns in southern Africa.

“Serviced office space is growing in popularity owing to the flexibility it provides in comparison with traditional office accommodation. The niche market is expected to continue recording growth over the next few years as new entrants establish themselves whilst existing providers expand,” reads the Knight Frank report.

As a result, several serviced office providers are opening new facilities; with homegrown co-working space provider Workable opening a 12,000 sqft shared workspace facility in January at Sanlam Towers.  Nairobi Garage opened its third 14,000 sqft co-working facility at The Watermark Business Park, Karen, in February. 

Others offering such services are Regus, Aviators and Solis Limited. Regus is the world’s largest provider of flexible workplaces, with a range of products and services including equipped offices and meeting rooms. Based in Luxembourg and listed on the London Stock Exchange, Regus has almost 3,000 business centres, spanning almost 900 cities across 120 countries. 

Business goals

Workable’s corporate co-working hub  has 19 private office studios that can accommodate 110 people in a variety of flexible configurations, two meeting rooms, an in-house full-service café and an all-weather terrace.

Workable Chief Executive Samir Patel says an influx of multinational business and non-governmental organisations, as well as maturing start-ups, has also propelled demand for spaces that can accommodate their need for expansion, while still offering the same vibrancy of shared offices.

“Corporations are looking to align their real estate portfolios with broader business goals. Adopting the ‘space-as-a-service’ strategy is one way to deliver both cost management and greater flexibility where you pay for space and services such as meeting rooms on-demand,” says Patel.

Cytonn’s Senior Manager for Regional Markets Johnson Denge says serviced offices in Nairobi metropolitan area continue to post high rental yields, with last year posting up to a 13.5 per cent increase. “The likes of serviced offices are becoming increasingly popular and it will be interesting to see what further changes await the industry in light of technological advancements occurring daily,” said Denge.

Office space glut 

The global shared office industry is estimated at Sh10 trillion and has recorded astronomical growth in major cities on all continents since 2005.  This concept of co-working has helped millions of people increase productivity and network opportunities. 

Additionally, co-working spaces provide start-ups with a feeling of owning their own office where they can pop in anytime and work for as long as they wish. This also gives them the chance to explore other opportunities. 

This means entrepreneurs can concentrate on work, without bothering about administrative work and about securing funds for setting up an office or the nitty-gritty of managing it.

However, despite the positive outlook with serviced offices, the Kight Frank report also reveals that absorption of Grade A and B office space in Nairobi declined by eight per cent during the first half of 2019 compared to the second half of 2018. The decline and stagnation of rents is  attributed to oversupply of commercial space and economic slowdown. 

Cytonn says in 2018, the sector recorded supply of  nine million SQFT, against a demand of 3.8 mn SQFT, hence an oversupply of 5.2 mn SQFT, resulting in a rise office stock by 10.4 per cent  to 35.5mn SQFT in 2018, from 31.5 mn SQFT in 2017. As a result, some landlords are offering concessions such as longer fit-out periods, partial contributions towards tenant fit-outs, or giving discounted rentals to retain existing tenants and attract new ones.