Co-working space in growth trajectory as investment in start-ups rises
by CHUKA UROKO
June 12, 2018 | 5:07 pm| | | Start Conversation
Collaborative work-spaces commonly called co-working spaces is in high demand growth trajectory that is driven by rising investment and increasing number of start-up firms which are the major off-takers of these spaces.
In Nigeria, particularly in Lagos, the country’s economic heart beat, co-working is already a trend that is driven by the city’s high start-up ecosystem. Nigeria has a strong entrepreneurial culture as catalogued in the Global Start-up Ecosystem 2017 Report, which valued the Lagos startup ecosystem the highest in Africa with a growth index of 6.6.
Though very new in the Nigerian commercial office space market, co-working is also a global trend being driven by the need for more cost-efficiencies in businesses and reinforced by the ease and flexibility that the co-working model offers.
Expectation is that as these start-ups continue to spring up, there will be a stronger demand for co-working real estate solutions which means increased investment opportunities for the space suppliers.
A new report by Broll Nigeria confirms that co-working in Lagos is expanding quickly and the bulk of supply is by local service providers, typically operating in stand-alone converted residential properties or C-grade office buildings. Demand is being driven predominantly by strong start-up growth.
“In Lagos, we see the global co-working trend through a varied number of local service providers operating in the market. With over 50 local co-working operators, Regus is the only international brand operating under a direct franchise model in the market”, Bolaji Edu, Broll’s CEO, told BusinessDay.
At the heart of co-working is the ‘plug & play’ concept which mitigates occupational obligations for tenants such as fit-out costs and lease negotiations while offering flexibility and ease of doing business.
These inherent attributes make co-working increasingly popular across the world and especially in emerging markets such as India and South East Asia. The Global Co-working Unconference Conference, (GCUC) estimates a global growth of 108 percent by the year 2022, up from the 14, 000+ global co-working spaces recorded in 2017, showing the speed at which co-working is to expand.
However, the Broll report takes note of a few downsides in Nigeria as against global trend. Co-working in its truest essence is a fairly new concept in Lagos. Its operators tend to incur both the capital and operational costs of running their spaces which is a deviation from global trends that incorporate other operating models.
“Co-working in Lagos for many service providers is a secondary service line to other core service lines in the business; typically, these businesses tend to be knowledge hubs that diversify into co-working services”, Edu observed, pointing out that there is a strong patronage of co-working in Lagos as many service providers are operating at full capacity and are rolling out expansion plans.
Available statistics show that 87 percent of operators are unwilling to expand to prime grade buildings; average occupancy rate is 74 percent; 50 percent of the operators have co-working as the core business line, while only 19 percent of the operators own their own space.
A recent market survey by Broll indicates that with the exemption of certain operators in the market, a handful of service providers have only existed in the market for less than 12 months. Operators that have operated longer than 5 years tend to incorporate co-working as an off-shoot of other core service lines.
So far, co-working has proved to be a highly competitive market, but even though demand for spaces is high and is anticipated to keep rising, some operators that are yet to establish their brand in the market, tend to price under costs to gain market share.
“This is impractical and unsustainable in the medium to long term; many service providers operate from converted standalone properties where they pay naira-based flat rates. In a location like Ikoyi, rents range from N25 – 35 million per annum, an equivalent of $70, 000 – $100, 000 per annum.
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