Flexible workspace operators are on the rise.

In Hong Kong, as at June 2016, flexibleworkspace operators have committed to over 270,000 sq ft of office accommodation in this calendar year, and this is forecast to hit 475,000 sq ft by year end. By comparison, PRC companies committed to occupying approximately 400,000 sq ft of office space in Hong Kong during 2015, which was said to be the peak of new mainland leasing activity in the city.

Why Demand For Flexible Workspace is Growing

With the rise of the millennial workforce, which will make up an estimated 50 percent of the global workforce by 2020, and growth within the technology sector, in particular fintech, more tenants are seeking flexible, non-traditional solutions to meet the demands of their rapid growth. Conventional lease terms of 3 to 5 years, commonly offered in Asia, do not fit in line with the pace of their growth.

Additionally, we are now seeing established MNCs seek flexible solutions and shorter lease terms to address the challenges they face within the current economic climate. There is also the potential for significant impact on demand due to changes in lease accountancy standards, with Colliers expecting these changes to increase demand given that non-designated office space can nowremain off of company balance sheets.

Gauging the Impact of Flexible Workspace Growth on Existing Providers

As the flexible workspace market grows, traditional serviced office operators are reviewing their strategies to ensure continued growth. Regus have recently acquired a coworking operator which they are rolling out globally, while some other providers are reported to be scaling back their expansion plans in Asia Pacific.

By contrast, New York-based WeWork, which just broke into the region with its first Asian venue having opened in Shanghai this month, are on a huge expansion across Asia and Singaporean operator JustGroup are looking to export their JustCo model across Asia and beyond.

What is the Impact of Growth in Flexible Workspace on Landlords?

The growing popularity of flexible workspace has both positive and negative impacts forcommercial landlords.

WeWork has already become the biggest tenant in New York, and flexible workspace operators can be expected to take up large amounts of space in this region as well. In addition, most flexible workspace operators do not need to align lease commencements to the expiry of leases on existingpremises, which creates pre-let opportunities.

Finally, flexible workspace operators often act as generators of traditional tenants for the landlord if the client or member of the operator moves on to permanent space.

One of the negatives sometimes cited regarind flexible workspace operators is their potentialimpact of on the tenant mix within a building. h\However, this factor can be turned into a positive for the project, provided that the builder operator chooses the flexible workspace provider that best compliments their existing range of occupiers.

Potential Benefits for End Users

Using Hong Kong as an example, there are now a range of flexible workspace concepts to select from.

A company can now choose from an operator such as Servcorp, who are considered the global market leader in premium flexible office accommodation, with traditional serviced office accommodation in Hong Kong’s most iconic development – Two IFC, to a local coworking operator, such as Campfire, offering space in a Grade B building in Kennedy Town.

In between these two extremes lay a range of international operators – WeWork which will soon open 90,000 sq ft of coworking and serviced office space in Tower 535 Causeway Bay, and Regus who offer a range of solutions across the market.

Tenants Now Have More Office Options

Start-ups often prefer the newer coworking arrangements, finding that while these spaces often cost more per square foot in rent than conventional office space, the reduction in capital expenditure and the flexibility offered (usually on month to month “memberships” rather than leases) is enough to off-set the higher rates. Co-working “members” are also often offered both face to face and web based networking opportunities facilitated by the operators, with someproviders even offering online platforms to exchange services as well as access to VCs andexperienced mentors.

MNCs are also increasingly attracted to coworking operators, with WeWork, which has already branched out beyond coworking, hosting the UK’s Guardian Newspaper in one of their New York centres. The office leasing startup also hosts American Express, among other large corporates.

Large financial institutions typically choose traditional serviced offices for branch or project offices. Servcorp estimate 60percent of their clients are MNCs – with UBS working from a Servcorp’s centre in Doha and, closer to home, Abu Dhabi Investment Authority, occupying Servcorp space in Two IFC.

Globally, and here in Hong Kong, we foresee demand for flexible workspace to continue to rise. Aside from the obvious benefits of limited capital expenditure and flexibility, the new lease accountancy standards mean that office accommodation that is non designated limits the initial impact on a company’s balance sheet.


By Michael Cole, August 10th 2016

Brexit may already being paying dividends for London – provided that the goal of the historic decision to leave the European Union was to make the UK’s capital look cheaper than New York and Hong Kong.

After sitting atop the world rankings for the most expensive real estate costs for more than two years, London is now cheaper than America’s biggest commercial hub and less expensive than Hong Kong, which ranked second in the rankings recently compiled by Savills.

Thanks to a weaker pound and other factors, the price in US dollar terms of occupying office and residential space in London has slid 11 percent in the last year according to the agency’s research, bringing the total cost of providing an office and a home for an employee down to $100,141 per year by Savills’ estimates.

New York, HK and Tokyo Continue to Climb

In New York the same costs have risen by two percent since 2015, making the total tab for accommodating an employee $114,009 per year. In Hong Kong, which remains the most expensive city in Asia, providing space for a single staffer now costs $100,984 – up one percent since last year.

In Asia, where a total of four cities ranked among Savills’ top 20 most expensive locations, Tokyo rated as the second most expensive place to rent space with costs estimated at $85,331 per year – a full 25 percent less than New York. The Japanese capital was the fourth most expensive location globally.

“Office-based businesses operating in major world cities will spend around one-third of their total operating costs on accommodation through a combination of commercial rents, paid directly to landlords, and demands on salaries created by the cost of employees’ living accommodation,” said Yolande Barnes, director, Savills world research, in explaining the importance of accommodation costs to businesses globally. “Fluctuations in these costs will therefore have a significant bearing on how competitive a city is to employers.”

Although office rents and housing costs have been dropping in Singapore, the city still came in third in Asia and seventh worldwide, according to Savills, with combined annual accommodation costs of $61,335 per employee.

Shanghai Lands in Top 20 Globally

In mainland China, Shanghai was the only city to make the top 20 – coming in 17th on Savills’ ranking. The Chinese commercial hub’s estimated annual accommodation costs of $42,577 per year were just 37 percent of the cost in New York, and 42 percent of the fees that would be incurred for the same space in Hong Kong.

The figures were compiled in Savills Live-Work Index which compares total housing and office rental costs on a per capita basis in leading world cities. The real estate advisory firm, which makes its home in London, indicated that the city’s lower costs this year were driven not only be currency fluctuations, but also by weakening office rents in the finance industry. In New York, rents for both residential and office properties rose slightly in the early part of 2016, although the agency noted that growth in rental rates is slowing.

Currency changes also played a major role in Tokyo seeing the biggest increase in dollar terms as rent rises, particularly in prime residential and creative office sectors, were amplified by significant strengthening in the yen.


By Michael Cole, July 2016

As the UK and the European Union remain mired in uncertainty following Brexit, potential real estate investors in Asia Pacific are beginning to explore opportunities presented by currency arbitrage and further monetary easing from central banks.

According to JLL’s “EU Referendum – Making sense of Brexit – 5 days on,” the London office occupier demand will be subdued in the near term and perceived threats to the financial services sector in London may reduce high-end domestic residential demand. However, a devalued sterling opens up a large buying opportunity, notably from the dollar-pegged currencies of the Middle East and in Asia, Paradoxically, Prime London may be the one housing market in the UK to see upward pressure in price, as a result of the referendum decision, says the report.

The British Pound has fallen to a 31-year low of $1.30 on July 6 compared with $1.49 on June 23, the day before the Brexit referendum. Meanwhile the yen appreciated, while the USD-pegged Hong Kong dollar and the Singapore dollar, which is managed against a basket of currencies, rose in tandem with gains in the greenback. In Hong Kong, property stocks climbed amid perceptions that they were undervalued and the Nikkei Stock Average rebounded following an initial slump.

Singapore, China Buyers

Chua Yang Liang

Despite the downgrading of UK’s AAA rating, Asian buyers aren’t deterred. In Singapore, JLL has seen “more queries from Singapore clients looking to purchase,” says Dr Chua Yang Liang, Head of Research for Southeast Asia. “The motivation is to take advantage of the currency arbitrage and correction in house pricing although there are some who are “waiting” on the sideline for more market stability before entering,” he added.

In Hong Kong, there are also signs that investors are seeking opportunities in UK. “From an overseas investor’s perspective, the currency fluctuations could create great opportunity for overseas cash rich investors,” says Mark Elliott, associate director of International Residential Property Services at JLL in Hong Kong. Mainland Chinese investors have been reported to be seeking bargains after the pound plunged, although authorities are keeping checks to stem illegal capital outflows.

While sentiment in the residential market is somewhat positive, the mood in the commercial sector remains cautious. In the local Asia Pacific markets,, the impact of Brexit is mixed. “Some British and European firms may be more circumspect about investing or expanding in Asia Pacific while their core businesses face domestic headwinds, however, any negative impact will be mitigated by the fact that economic growth in the region is based largely on domestic demand,” says Dr Megan Walters, Head of Asia Pacific Capital Market Research.

The direct impact on China from Brexit is expected to be small as external demand is no longer a key driver of China’s growth, although a stronger USD puts depreciation pressure on the CNY, which will again test the People’s Bank of China (PBOC)’s management of the exchange rate as the government seeks a stable currency ahead of its official entry into the International Monetary Fund’s reserve basket on October 1, according to Dr Walters.

David Rees, Head of Research JLL Australia, says: “Offshore investors have accounted for a growing proportion of transactions in commercial and residential real estate in recent years. The major source of this capital has been the Asia Pacific region. It seems to be no reason why the Brexit referendum outcome should alter this in the near future.”

Quantitative Easing


The direct impact on the domestic real estate market in Japan is likely to be muted, says Takeshi Akagi, head of JLL Research in Japan. “Domestic investors are the current drivers and their appetite for investment looks unlikely to waver significantly. In terms of investment opportunities in the actual market, the reality is that these remain limited due to an ongoing scarcity of asset.”

While Brexit clouded the global growth outlook, Akagi says investors should not rule out the possibility of new economic stimulus measures by the Japan government and the Bank of Japan. In South Korea, President Park Geun-hye was reportedly planning a $17 billion stimulus package.

The Federal Reserve has said that it was “prepared to provide dollar liquidity through its existing swap lines with central banks as necessary to address pressures in global funding markets, which could have adverse implications for the U.S. economy.” The Bank of England and the European Central Bank have made similar statements.

Wall Street economists have also changed their predictions for U.S. rate hikes, projecting that the Fed will not raise rates until later this year. This generally will bode well for real estate markets.

As the yen’s status as a safe-haven currency led to its appreciation against the dollar, Akagi’s view is that amid economic uncertainty over Europe, Japan’s relative advantage as an investment destination will increase. “It is likely that Asian investment, which had been previously been targeting Europe, could seek to park their funds in Japanese real estate,” he says.

While some funds may be seeking to exit the UK, it is important to note that the healthy fundamentals that existed before the turbulence will help to limit the downside, according to JLL.

“While negotiation of Britain’s new arrangements with the EU will take time to resolve, the fundamental attractions of the UK market – transparency, liquidity and a familiar legal and regulatory environment – will remain. Obviously, though, we will need to monitor developments closely over the next few months,” says Rees.

XpresSpa unveils LaGuardia outlet; plots series of 2015 openings

Source: ©The Moodie Report

By Dermot Davitt

USA. Leading wellness brand XpresSpa opened its latest airport unit at New York La Guardia International Terminal C on 19 December. The outlet includes a Warren Triconi Hair Salon, where the operator will offer wash, blow dry and styling as well as its range of spa services.

The company said it had enjoyed a record year in sales terms in 2014, as it expanded the number of stores it manages at airports (49 by December). Year-to-date through 30 September, same store sales grew at a rate of +10.7% year-on-year. EBITDA at store level proved “strong” said XpresSpa, excluding pre-opening costs. In some cases lower store margins resulted from the rollout of XpresSpa’s HealthCare Plan to its spa employees, a direct result of the Obama Affordable Care Act.

The latest unit at New York LaGuardia opened on 19 December, and includes a Warren Triconi Hair Salon, where the operator will offer wash, blow dry and styling, as well as its spa services

XpresSpa has signed leases for eight new airport outlets to be built in 2015. They include Atlanta terminals D, E, F; Dallas/Fort Worth Terminal A; New York JFK terminals 4B and 8; Denver Terminal C and Los Angeles T6.

In addition, the company said it was deploying “a softer, more trendy spa design” that is rolling out over the next 12 to 18 months with a consistent upscale look. Two of these new XpresSpa designs have opened; the new unit at LaGuardia plus one at New York JFK Terminal 4A (to be reviewed in a separate piece on that terminal coming soon).

The company added that its branded product strategy is complete, and 18 new SKUs will be launched in stores during Q1 2015. The new retail offering is expected to contribute to higher margins in 2015 and beyond, it said.

New products are being launched under three key categories – Protect, Calm, and Energize – and include massage creams, essential oils, body lotion, face mists and soaps.

The company’s latest design can be seen at its JFK T4 outlet

In a briefing on its performance and the industry outlook, XpresSpa said: “The airport retail concession industry is experiencing a flood of new opportunities in 2015, paving the way for XpresSpa to capitalise on an unprecedented number of RFPs in the coming months (including at Tampa, Phoenix, Fort Lauderdale, etc.)”

LAX TBIT is among the recent openings in the fast-growing portfolio

It added: “As airports continue to renovate, travellers are demanding a higher-end experience – from luxury retail brands to higher end restaurants, to personal indulgent services like XpresSpa.

“As the dominant brand in the airport spa industry with more locations than anyone has ever opened and operated, XpresSpa is in a unique position to capitalise on these circumstances and further strengthen its grasp on the airport spa industry.

“In 2015, the company expects to bid via RFPs or direct negotiation on approximately 35 locations throughout the globe. Of those, XpresSpa already has eight under lease.”

The company has eight new locations under lease and is bidding on many more

Luxury retail market hit by declining gaming revenue in Macau
Source: ©The Moodie Report
By Elly Glendenning
MACAU. Despite increased tourism numbers, Macau’s casinos posted their first annual revenue decline in 2014, a fall that hit the luxury retail market and which is expected to continue well into 2015.

Macau’s Gaming Inspection and Coordination Bureau last week released data showing a -2.6% fall in total annual revenue to MOP351.5 billion (US$44.1 billion).

The Chinese government’s campaign to curb excessive spending and corruption was a key contributor to the decline, alongside changing visa rules, a slowdown in the Chinese economy and tougher credit conditions. This has deterred many high-stakes gamblers from the Mainland, in turn denting luxury retail spend.

“The VIP heyday is over,” Philip Tulk, an analyst at Standard Chartered in Hong Kong told Bloomberg. “The anti-corruption crackdown doesn’t look to be a short-term phenomenon.” Tulk said that funds flows between the Mainland and Macau were being much more closely scrutinised, thus deterring many gamers.

Bloomberg pointed out that the crackdown has particularly deterred high rollers, who account for two-thirds of Macau’s casino receipts.

Shopping makes up 49% of visitor spending with Shoppes at The Venetian (pictured) among the luxury destinations
Macau, the only place in China where casinos are legal, enjoyed a decade of spectacular growth that saw it become the world’s largest gambling hub. In the process it enticed high rollers from Mainland China and elsewhere, prompting a related luxury retail boom.

However, gross monthly revenue growth from ‘Games of Fortune’ (gaming tables and slot machines) began to slip early in the year before sinking into negatives from June with a -3.7% fall year-on-year. October and December saw the largest monthly declines of -23.2% and -30.4% respectively.

Shopping spending distribution Q3 2014; Source: Government of Macao Special Administrative Region Statistics and Census Service Visitor Expenditure Survey

While revenue has declined, data from the Government of Macao Special Administrative Region Statistics and Census Service showed that visitor arrivals to Macau grew by +8.4% from January to November with Mainland Chinese visitors up +15.3%.

However total visitor spending for Q3 2014 increased by just +5% year-on-year to MOP15.5 billion (US$1,940 billion).
This recent edition of The Moodie Report e-Zine features a key interview with the world’s largest integrated resort operator, Las Vegas Sands Corp, focusing on its latest Macau developments including The Parisian. Click here to read.
A recent survey by the Government of Macao Special Administrative Region Statistics and Census Service showed that per-capita expenditure (excluding gambling) fell -1.4% year-on-year in the third quarter. With shopping making up nearly half total per-capita spending, sales of high-demand products such as watches, jewellery, food and leathergoods were affected.

Investment bank Nomura said today that it expects the decline to continue through Q1 2015 as premium mass gamblers follow VIP players and reduce their spending. If the daily revenue rebounds to MOP800 million (US$100.2 million) Nomura believes the market will stabilise and maintains a +8% gross gaming revenue increase estimate for 2015. However analyst consensus is still expected to point towards a downwards shift.

Bloomberg last week cited analysts Fitch, Credit Lyonnais Securities Asia and Wells Fargo & Co as forecasting that gaming revenue will continue to fall during 2015.

The agency’s report quoted Wells Fargo & Co Analysts Cameron McKnight from a note: “With revenue trends still decelerating sequentially, it is now unlikely that the overall Macau market will grow in 2015.”

However, new casino resorts opening later in the year offer cause for optimism. A prime example is The Parisian (see The Moodie Report e-Zine cover story, pictured), which is set to open in late 2015, featuring a luxury shopping offer that includes a beauty store from Dufry/Nuance.

On a similarly positive note, some believe that Macau remains relatively unpenetrated by Chinese visitors (one source said that just 4% of Mainland Chinese have visited Macau) and that a bright future for the gaming sector lies in the relatively untapped mass market sector.
Outlets such as Pacifica Gaming at Sands Cotai Central are drawing big crowds but overall gaming revenues have slipped in recent months