Hub Australia predicts a year of co-working consolidation

Hub Australia predicts a year of co-working consolidation

14 February 2020

Despite the WeWork fallout, Hub Australia founder and chief executive Brad Krauskopf believes 2020 will be a year of consolidation in Australia’s co-working market, as different players look to scale their offering to attract better deals.

In comments made to the AFR, Mr Krauskopf believes “co-working is going to continue to require scale and landlords are going to continue to want to deal with reputable operators with solid businesses.”

“To this end I do see consolidation is going to take place. You are going to see further international players come to Australia, but first, 2020 will see everyone focus on the market they’re currently in.”

Unlike WeWork and many other co-working spaces, Krauskopf’s family still owns a majority stake in the Hub Australia business – which he said had been profitable for the past two years. Investor Wingate, which first invested in 2017, now holds almost 42 per cent following a $12 million equity-and-debt capital raising late last year, company records show.

Hub Australia will take three floors of the historic Ball & Welch building at 180 Flinders Street. The Hassell-designed 4404sq m co-working space that will open after the building’s scheduled completion in August will give Hub Australia a presence on the CBD’s southern edge and close to Flinders Street train station, complementing its Spencer Street facility in the west, its 1 Nicholson Street premises on the north-eastern corner and its more central 162 Collins Street space.

“It completes our coverage of Melbourne’s CBD,” Mr Krauskopf said. “It also provides another truly premium location.”

Hub Australia’s recent capital raising will fund further growth, including of a soon-to-be announced ninth national location in Sydney.

The increase in co-working’s penetration in Australia from 2 per cent of office space in 2018 to 10.3 per cent by 2028 will lag the global sevenfold increase that research company Morningstar has forecast.

That estimate would boost total penetration from 2.5 per cent to 15 per cent – or from 33.7-million square metres to 2.5 billion square feet – over the same period.

“Amid the tumult surrounding WeWork’s implosion, investors may be forgiven for asking whether co-working will ever work for them,” the report said.

“We are convinced the answer is a resounding yes. Once a staid industry relying on long-term leases, office real estate has been upended by users’ voracious appetite for flexibility. As co-working emerges to meet that need, we think it will increasingly form an ever-greater portion of total office space.”

Investors remain wary in the wake of WeWork’s high-profile failed IPO, the Morningstar report said.

Venture capital investment in co-working companies other than WeWork reached a record  $3.83 billion last year, a 31.5 per cent increase on 2018, as funders put money into rival businesses such as Knotel, Convene and Industrious.

However, WeWork’s shelving of its IPO plans in late September triggered a change, the report says.

“All in all, the future looks grim for VC financing in the co-working industry,” it says.

“Not a single round has closed since WeWork formally withdrew its IPO plans.”

“As the traditional co-working model continues to smoulder because of its inherent asset-liability mismatches, we expect to see more services-focused companies, which can cater to traditional office landlords in addition to start-ups,” the report said.