Yulia Prokhorova: ‘The demand for quality facilities is a driver of development of co-working sites’

A real estate expert about new trends of the industry and the popularity of the format of co-working and flexible office spaces

At a meeting Coworking Style in Kazan, representatives of the commercial real estate market discussed the development prospects of co-working and flexible office spaces. Despite the big projects in this area that were announced earlier, the market of the Tatarstan capital is still far from satiation and the potential demand for the rent of quality facilities suitable for co-working significantly surpasses the current supply thinks Perfect RED’s executive partner Yulia Prokhorova. In an op-ed column for Realnoe Vremya, the expert explains how the sharing model in commercial real estate is gaining momentum. Projects of federal players SOK and Workki will launch more than 7,000 square metres of flexible office spaces altogether.

Twofold growth in co-working sites again

From 2019, 2021, the area of co-working sites in the Tatarstan capital more than doubled: from 3 to 7,000 square metres. During the first quarter of 2022, there weren’t changes, but this is the real “the calm before the storm.” So by the end of the third quarter, we expect flexible spaces to double, that’s to say, to 14,000 square metres.

According to Perfect RED’s data

Co-working sites in Kazan, indeed, are developing at a high speed. The biggest operators, which are federal, are entering the market. It is SOK (planning to open SOK co-working site on 2, Pushkin Street by August 2022) and Workki (expected to open On Bauman co-working site on 89, Bauman Street in summer).

It is a global trend that flexible office spaces are developing because tenants are looking for quality areas that are functionally and technically convenient to locate their staff. The “all-inclusive office” model is considered more not to distract from their key business model. As it is known, there is a fierce fight for high-skilled staff in the market, and employers try to choose as comfortable labour conditions as possible to have a competitive edge in recruitment.

Three main requirements for a site

There are strict requirements for co-working sites. Employees the company appreciates and intends to retain as staff members are end consumers of the service. The employer, the tenant of workplaces determines their labour conditions. An operator of the co-working site, which in turn has requirements for the property to its owner going by common and individual requests of their clients provides the necessary conditions. In fact, federal tenants claim the criteria looking for sites to develop a business in Kazan following the example of the leading Moscow co-working sites.

Right now we are holding close talks with big clients, offering to place them in Class A business centres, we consider co-working SOK operator is opening too.

The key requirements are a ceiling more than 3 metres in height with Cat A fit out, good ventilation, finished engineering networks. Most clients consider ready-to-use options only where it is clear from the beginning where and how to sit the staff. This is the difference between renting a flexible office from a standard one: a business doesn’t want to spend time on organisation, it needs its employees to quickly get down to work, moreover, in more suitable conditions.

If the facility has a ceiling 2,6 metres high, the ventilation system is still at design stage (in other words, it will consequently occupy a part of the height), the site cannot be used for co-working even if it is in the city centre, in a unique location, has a historical value, etc. And federal tenants less such spaces as Class A less and less.

Secondly, it is the air. The productivity depends on the CO in the office. So if the air circulation in the room is low, tenants simply won’t rent this area.

The geographical location of the site can be the third-most important thing. Without doubt, it is not retailing that requires constant client traffic. For co-working, convenient junctures, transport and pedestrian accessibility are important. In other words, buildings near the metro, big transport hubs and at least not far from public transport stops are a priority.

Big federal tenants are mainly looking for areas for call centres, IT specialists now. These companies develop in Russia despite the crisis and they often turn to us to look for sites.

The client won’t wait

Now demand for quality facilities prevails supply in Kazan. From the experience of my company, I can say the picture is the same in Samara, for example. We are also ready to meet with owners of commercial properties there and help them to change the format of the areas for tenants’ new requirements. By the way, Samara and Kazan has very similar numbers. I think dynamic development awaits our neighbours too.

Office tenants aren’t usually ready to wait the repairs to end so they can start sitting the staff. When they come to an unfinished area and hear the owner say the area will look the way you want it to but it is necessary to wait for half a year, they simply turn round and go. They can wait for 3-4 moths at best, and only if they need some non-standard solution and it objectively needs additional time to realise.

So the owner has to prepare the area in a way that it will flexibly change to meet the tenants’ requirements when it comes to layout decision and was equipped with ready engineering systems.

Yes, this requires huge expenses at the beginning but it pays back due to a higher rent rate and no idle time. If a square metres of a standard office in Kazan is now rented for 885 rubles on average, an equipped co-working space of the same size costs 35% more expensive (considering MOSFET switching losses that are present in standard offices). Of course, in this case the rent is not the only item of expenditure: the purchase of furniture, computers, utility bills, maintenance and security costs and so on are taken into consideration. But the rent of the area anyway seriously goes up and provides the owner a higher income.

Tenants’ demand for co-working sites starts with 15 square metres — for 3-4 workplaces. But of course, big federal tenants who are selected areas from 1,000 square metres and more as a rule are the main flow. The sector goes by primarily such clients at the moment, co-working trends rest on their requests.

The co-working market develops thanks to several factors: the development of the region itself and the demand for the areas from federal employers, a deficit of quality projects in the market of office property of the region and a rise in tenants’ expenses on major investments in the facilities, financial efficacy of facilities for redevelopment or design of a flexible space in the new building. Co-working is an panacea for the vacancy or an increase in the profitability of facilities, during this period, it is rather an illustration of changing trends of the rent demand. And precisely the demand will dictate conditions during the era of vacant areas.

Yulia Prokhorova

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The author’s opinion does not necessarily coincide with the position of Realnoe Vremya’s editorial board.