Industry Report: Property

By Christine Joyce S. Castañeda, Senior Researcher
THE OFFICE workplace is usually associated with partially enclosed spaces and fixed working hours. Amid technological innovations and circumstances, however, it is no exception to changes. At present, the office could mean a flexible and open workspace — a stark contrast to the cramped environment employees are accustomed to.
The demand for such workspaces has been increasing and this trend is seen to be sustained in the coming years. For instance, a JLL report titled “Technology firms transforming the office landscape in Southeast Asia” released last September showed a 40% compounded annual growth rate (CAGR) in flexible offices in Southeast Asia, accounting for 2% of the office stock in the region from 0.5%-1% in 2015.
In the same report by JLL, they expect the segment to account for as much as 30% of corporate portfolios by 2030.
Similarly, a report by Pronove Tai showed a 258% surge in demand for flexible workspace in the Philippines last year to 37,000 square meters (sq.m.) from 10,000 sq.m. the previous year.
Lastly, Colliers International expects flexible workspaces in the Philippines to grow by at least 10% annually in the next three years in its report titled “Top 10 Forecast for 2019: Flexibility is the Name of the Game.” The demand, Colliers said, will be driven by the rise in the country’s micro, small and medium enterprises as well as the additional entry of multinational corporations (MNCs) and outsourcing companies searching for plug-and-play offices.
To help understand this emerging industry more, BusinessWorld sought the insights of KMC Solutions, which is one of the major flexible space providers in the country. Last month saw KMC Solutions formally launching its 36th co-working space in Filinvest City in Alabang, Muntinlupa City.
Muntinlupa was the ninth city the co-working space provider has a presence in after Makati City, Quezon City, Pasay City, Mandaluyong City, Taguig City, Pasig City, Iloilo City, and Cebu City. At present, KMC Solutions has 57,151 sq.m. of space or 10,367 seats.
All these offices have floor-to-ceiling windows and a manager’s office convertible into a meeting room. Other amenities include a community area, pantry, conference rooms, phone booths, clinic and lactation room, and a training room for health activities.
The company targets to have at least 4,000 more seats, or around 20,000 sq.m. of office spaces this year. This would bring KMC Solutions’ portfolio to about 77,000 sq.m. or around 14,000 seats.
With these, KMC Solutions’ Chief Operating Officer Tracy G. Ignacio discussed with BusinessWorld her thoughts on the future of flexible workspace and the company’s plans for the future.
Below are excerpts of the interview:
How strong is KMC Solutions’ brand in the flexible workspace provider market?
We are the largest in the Philippines with more than 40% share of the total flexible workspace inventory. We are proud of the fact that we are a Filipino company serving multinational businesses and that we are ready to compete with known brands across the globe when it comes to serving this country.
How do you make yourself distinct to clients?
Our business model is what differentiates us. KMC is focused on helping businesses enter, operate and grow in the Philippines. When we face clients, we offer them a one-stop-shop for all requirements/needs, regardless of the size and/or the growth stage their business is in.
Office space is only one KMC service, we put emphasis on other necessities such as staffing requirements, IT services, legal advice and office build-outs to name a few.
What are the advantages of renting flexible office spaces? How about its disadvantages?
The major advantages of renting flexible offices are:
(a) Less cost on operating expenses. In flexible offices, businesses would not need to spend much on office construction/maintenance. Flexible office operators provide the facility, equipment, and amenities needed by businesses. For businesses who are trying to feel their way through the market, or in the process of building a base of operations, going for a flexible office is a practical choice. It minimizes financial risk overall — definitely a practical choice for startups, SMEs (small and medium enterprises) or foreign businesses entering the Philippines.
(b) Ability to scale fast. Flexible offices provide businesses with room to scale. Whether they expand in manpower or opt for leaner operations, flexible offices allow them to do this with minimal or no cost at all for physical adjustments. With flexible offices having all the tools ready for operations at any time, ideally, all the clients need to do is to plug in and do their work.
The main consideration that businesses must make when occupying flexible office spaces is its shared environment. Commonly, flexible offices have dedicated private rooms, but the entire facility is shared — specifically the common areas such as the pantry or the lounges. Giving respect for the other clients and employees is a top priority in our spaces.
Can you explain to us how the system between you and your client works?
We treat our clients as business partners and fellow entrepreneurs. We make it a point to know and understand their business as well as form close relationships with them. We adjust our work relationship based on how much guidance and support they need from us.
Normally, we empower our clients to make the business decisions themselves. Our role is only to provide advice and support through those decisions. We also make sure that they are involved in our endeavors. Whenever there is an opportunity to share knowledge or celebrate milestones, we get them involved in it. We make them part of the entire KMC community.
Were there any challenges you experienced when you started this business?
This is a very capital-intensive business as most of the costs are upfront without the guarantee of when you will sell the seats. The first few years, we were very conservative and when we had enough cash saved, we grew and the rest is history. Aside from that, scouting new locations to expand in was tough as the idea of the flexible workspace was quite new to landlords.
Can you tell us what your company has attained over the past five years? How did your company perform last year?
We have experienced rapid growth in the last five years of operating. From 2014, we have nearly quadrupled the number of flexible spaces we operate. From 10, we now operate 36. In 2018 alone, we opened 10 offices — the most we have in a year’s time. Seat count-wise, that’s an additional 8,500 seats, translating to 8,500 jobs. We saw our products and services improve as well. A side-by-side comparison of our space offerings between 2014 and 2019 show our improvement in overall design and location selection. Revenue-wise, we reached our target for 2018 and are expecting to replicate the same feat this year.
What are your prospects for expansion across the country? What are the factors that determine where to expand?
There are a few factors that help us decide why we need to expand and where we should expand next. We regularly base our expansion decisions on the speed of our occupancy and the demand from both current and new clients. Aside from catering to new client requirements, our current clients continue to grow. To keep up with the changes, we continuously search for the right venues that will serve both types of clients properly.
With the help of our sister company, KMC Savills, we update ourselves with the latest trends in the property sector through their research. There are a few basic things we keep an eye out for when expanding in a new location:
(a) Infrastructure. We make sure that the office we’re setting up is accessible to both private and public transportation. We want our clients to work in locations that are conducive to do business in, thus the selected location’s development plan plays a role in our decision. The infrastructure should also have room for expansion should there be a need to scale in the area.
(b) Convenience. We also look into what surrounding establishments can help our clients and employees have better work experience. The availability of restaurants, malls, convenience stores, etcetera, also plays a role.
(c) Population. Populated areas have relatively large talent pools to tap and we see this as an important factor in opening a new site. We want to provide more jobs for the people living in the selected area, and at the same time, provide accessible talent to our clients who will be operating in the new locations.
Where do you see growth in flexible workspace rental coming from? (Which industry and region)?
BGC (Bonifacio Global City), Taguig and the Makati CBD (central business district) are still the hottest areas for flexible office space growth given the infrastructure and the amount of business growing in the areas. The cities we believe that are great for flexible workspace expansion are Ortigas (Pasig), Quezon City and Alabang.
The main driver for flexible office space is flexible work. Right now, the IT-BPO (information technology-business process organization) industry still leads in flexible office space occupancy because they apply flexible work terms for their employees more often than other industries do. Their utilization of technology plays a big part in their ability to do so.
Flexible working spaces have seen tremendous growth according to various reports. Do you see this trend to be the same for the Philippines?
We do confirm that there is an increasing trend for flexible workspace growth in the Philippines. From our end, the occupancy of all 10 new offices we launched last year showed that demand for the spaces is strong. We now see MNCs requiring their headquarters here to transfer to this kind of setup, which is something we did not see in the past.
Another significant sign of a growing market for flexible workspace industry in the Philippines is the entrance of international players. Their presence in the country shows that we are embracing new ways of working — and this is favorable to international businesses.
We see further expansion in this industry as flexible workspaces are transforming the image of the office. It is no longer just a place for business, the activities you can do in it promotes a lifestyle.
What is your outlook for the company in terms of revenue?
Our target for 2019 is to increase our revenue by almost 80% —something we have not done in recent years and especially not when we are already at this size. However, we continue to be bullish as we see inevitable growth in this market as a response to the changing work culture, globally and here in the Philippines.