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Australia's Coworking Market: Overview And Trends

Australia's coworking market is part of the larger Asia Pacific region, which has been identified as the fastest-growing flexible office market in the world. Initially, the country's coworking market lagged behind Europe and the United States, and was not as developed as those in other countries in terms of diversity of services, specs, and amenities.

Until very recently, coworking hubs in Australia were mostly renovated serviced offices in open plan layout, sparsely furnished and equipped. But as the coworking model becomes more sophisticated and there is a change in perceptions among both landlords and tenants, the range of amenities and services are improving at a fast pace. At the time of writing, Australia's coworking market was the 7th largest in the world, and total market size amounted to almost 200,000 square metres split across more than 300 coworking hubs.

Top Coworking Locations In Australia

Sydney and Melbourne are Australia's largest coworking hubs, as they are home to nearly 60% of all square footage devoted to coworking in the country. Sydney, Canberra and Perth are the priciest locations, whereas Adelaide has the lowest average rates.

Sydney is a strong-performing market that is becoming increasingly consolidated and Melbourne has followed suit, recently experiencing increased competition and an overall improvement in facilities and amenities.

Other important locations include:

- Canberra - among the priciest in the country and marked by low availability, although there is a big contrast in prices and available options between CBD and non-CBD offerings.
- Brisbane - a smaller market that's generally slow-moving in areas other than the CBD.
- Perth - where most demand is for non-CBD properties although there is a limited number of coworking hubs.
- Adelaide - characterised by affordable rental rates in both central and suburban locations.

Coworking Trends in Australia

Rental Rates Some important developments have been taking place since 2018. First was a noticeable decline in rental rates as the market became more competitive and tenants had a wider range of choices. This was especially evident in Brisbane, which experienced year-on-year price drops of almost 25%. Price drops were evident in all major Australian sub-markets except for Canberra, where average prices increased by almost 40%.

Availability During the same year, the market also experienced a 25% increase in the number of workspaces available, and during the first three months of 2018 alone, more than 65,000 square metres of coworking space entered the market. Prior to this, supply and demand ratios had been unbalanced, with demand far exceeding the current supply levels, and sometimes pressuring tenants into signing leases despite not being the most adequate for their needs. In 2018, supply met demand for the first time, which is a positive development for existing and future coworking users in Australia.

Operators Approximately 20% of all coworking providers are large corporations, and many are former serviced offices firms who rebranded themselves into coworking companies. Coworking space providers include major global operators like WeWork and Regus (the two largest companies with almost 10% of all spaces), ServCorp, and Compass. However, single-location operators are growing in numbers too with a focus on bespoke and boutique spaces.

Tenants As offerings improve and rates become more competitive, there has been an increase in the number of large companies interested in leasing private offices in coworking spaces. Large corporates only accounted for 2% of all coworking occupiers in 2014, but this number had increased to 20% in 2017. In terms of industry sectors, the largest are by far tech-related industries like IT, software, and digital services. But since 2017, there has been a steady increase in professional services firms moving into shared offices, especially in sectors like accounting, legal services, and sales.

Length of Contracts Across the country, this market is characterised by short and mid-term lease lengths. The Australian average is just over 7 months, although 12 month contracts are available and still offer higher flexibility levels than traditional office space. Reports show that more than 30% of coworking space users in Australia sign up for a 12-month lease, with an additional 19% choosing rolling month-to-month contracts.

The Future of Australia's Coworking Space Market

The Australian coworking market is ripe with opportunity. Cultural and demographic changes like the large-scale incorporation of Millennials into the workforce will be important factors driving the growth of the market, since reports show that approximately 65% of coworking space users are within the 25-44 age group.

Demand is also set to increase due to the characteristics of the Australian business scene, which is mostly made up of companies with no more than 20 employees - the type of occupier likely to explore coworking as an alternative form of office accommodation. Another future development that will boost coworking entails a shift in office space requirements and a trend towards downsizing, especially in locations like Sydney and Melbourne where traditional office space costs are high.

Moreover, the arrival of capital from Asian and European investors could help inject some strength into Australia's coworking market and boost its growth rates. As both offerings and competition increase, the long term effects are likely to reverse current market trends, putting pressure on operators instead of on tenants and contributing to an overall softening of prices.

Overall, the Australian market will keep pace with global trends in the flexible office real estate market, which according to some reports will account for 30% of the total by 2030. In the case of Australia, the market is expected to triple in size by that year and to reach a value of more than AU$120 billion, amounting to 12% of total office take up.