As risk appetites shrink, business leaders are eyeing flexible workspaces

For many organisations, the flexibility of shared workspaces is too good to pass up, but is there a price tag attached?

When it comes to work, flexibility is prized by employers and employees alike. It’s the driving principle behind the hybrid work debate, and it’s why so many employees prefer to work on a contractual or casual basis. It should surprise no one, then, that flexibility is being sought after in the way we design our workspaces themselves.

Chief executive of @WORKSPACES, Brett McAllen, said businesses worldwide are shifting away from long-term, lock-in lease agreements for office spaces. Why? Flexibility, of course.

“Flexible work shared workspace hubs are now the golden child of Australia’s business community. This is a trend that is spreading across the world and is now firmly taking hold in Australia,” said Mr McAllen.

From the chief executive of a flexible office provider, you’d be forgiven for being sceptical. That said, the data do suggest that flexible workspaces, at least in Australia’s major cities, are on the rise.

Changing appetites

According to CBRE’s Australian Flex Space in the Age of Hybrid Work report, across the 12 months to June 2023, Australia’s east coast flexible office market footprint increased by 2.1 per cent.

“This shift is driven by the changing preferences of tenants and the recognition that providing adaptable and versatile work environments can enhance tenant satisfaction, attract new occupants, and ultimately add value to their properties,” said CBRE’s Australian head of office research, Tom Broderick.

Typical office leases are lock-in contracts of roughly three to 10 years. The major selling point of flexible workspaces is that businesses can increase, decrease, or terminate their agreements relatively seamlessly, allowing them to scale as needed. Naturally, this comes at a cost.

Flexibility premiums?

“It is typically cheaper to commit to traditional office spaces, as tenants tend to have to pay a premium for the flexibility that co-working or serviced offices provide,” said Mr Broderick.

For many small businesses, however, the flexibility benefits mean that the “premium” is hardly a “premium” at all, as the inflexibility of traditional workspaces is often unfeasible. Further, even in raw numbers, the premiums aren’t always there.

According to Rubberdesk, per Sydney-based employee, co-working costs are substantially lower than those in traditional offices at $643 and $948, respectively. Additionally, smaller businesses put more stock in the ancillary cost-saving benefits of shared workspaces in the form of savings on things like office equipment, internet, utilities, and meeting rooms that are used for only a fraction of the working day.

“[Businesses] want to be able to operate in an environment where they pay for what they need and the rest is taken care of,” explained Mr McAllen.

If flexible workspace adoption is indeed growing, it’s natural to expect decreasing costs. However, they appear to be holding steady at the national level. In December, the average desk rate (i.e., the cost per employee in a flexible workspace) was $660 per month, said Rubberdesk.

In Sydney CBD, however, desk rates dipped by 3 per cent in December, while the costs surged in Melbourne by 12 per cent. It’s worth noting that, even if flexible workspaces are growing in popularity, they are still a niche – potentially accounting for the steady costs.

While the business case might be clearest for smaller businesses, this is not to say larger businesses are not considering the switch.

“It isn’t just start-ups and small- to medium-sized businesses that are transitioning, we are seeing large organisations, corporate head offices and government departments making the move. Offices are changing as risk appetites reduce,” said Mr McAllen.

That said, for most larger companies, traditional office spaces continue to be the preferred option as they “allow tenants to create a more specialised workplace for their specific needs in terms of fit-out and technology within their footprint, while flexible space can tend to be more generic”, he added.

While cost and flexibility will continue to be determinative factors for many businesses considering the switch, others say these new workspaces are more about the benefits they deliver in terms of employee experience. At the risk of sounding naïve, dollar cost isn’t everything.

“Not only do people want to continue their workspace on more flexible terms, but employers are looking to create an office experience where people will choose to come into the office rather than work from home,” said Brad Krauskopf, chief executive of Hub Australia.