Saudi economic reforms bode well for co-working space market


By Rabih El Chaar* and Mohammed A. Alariefy**

AS Saudi Arabia’s economy changes, demand is growing for modern workspaces that are flexible and affordable. These kinds of spaces are called “co-working spaces,” locations where freelancers, entrepreneurs, small and medium-sized enterprises (SMEs) can share offices and services. Increasing the provision of co-working spaces in Saudi Arabia presents a major opportunity for investors to convert some of the kingdom’s available commercial properties into environments in which entrepreneurs and companies of all sizes can thrive.

Although there is considerable interest in Saudi Arabia for co-working spaces, their availability is limited. This is in contrast to the global co-working market, which has grown steadily for the past decade and is now accelerating. The number of global co-working spaces doubled in the past three years and their membership, in terms of the people who use them, has tripled. However, in Saudi Arabia there is a supply shortage. There are an estimated 3.4 co-working spaces in Saudi Arabia for each one million workers, compared to 32 for each million workers in the United States. That supply shortage contributes to Saudi Arabia having some of the highest co-working space membership costs in the world when compared to average commercial property rates.

The global expansion of co-working space is a result of technological advances and economic interests. Improved Internet connectivity allows people to access cloud storage, computing applications, and communicate from almost anywhere. More people, including recent university graduates, are choosing to become entrepreneurs, which has further stoked demand for co-working space.

There also long-term trends particular to Saudi Arabia that could bode well for the co-working space market. The national development plan, Saudi Vision 2030, aims to encourage entrepreneurialism and increase the number of freelancers and entrepreneurs. The plan acknowledges the key role that SMEs play in economic growth and diversification, offering them support to increase their contribution to GDP. In addition, more than half the Saudi population is under 40 years old, precisely the demographic that tends to seek co-working spaces.

There are four key attractions of co-working spaces for individuals and companies. First, they are more affordable than traditional office space. Users can rent the amount of space that best serves their needs, whether a desk or a floor, and they can rent basic business services on an as-needed basis, such as printing, meeting rooms, shared secretarial, and mail services.

Second, co-working spaces are flexible. A person or a company can quickly increase or decrease how much co-working space they choose to rent. This is particularly attractive to SMEs that often find it difficult to obtain exactly the right amount of office space for their workforce, which can grow or shrink rapidly. Indeed, even large companies are attracted to the flexibility of co-working spaces.

Third, co-working spaces offer a sense of community and networking opportunities because of their mix of open and closed offices. This can lead to a creative exchange of ideas, collaboration, and exposure to new technology.

Fourth, leading co-working spaces offer a variety of training and events to help members stay attuned to the latest innovations in the business world.

There are, however, financial challenges. Despite their growth, many co-working spaces around the world are currently unprofitable. The industry is still developing, with companies focused on improving capabilities and capturing market share. The implication for Saudi co-working companies is that they should offer a unique value proposition to their customers to maintain a competitive edge as they expand the amount of co-working spaces to meet demand.

If Saudi Arabia is to provide more co-working space, it will have to encourage investors to found partnerships with relevant stakeholders and promote investment. To assist companies, Monsha’at, the General Authority of Small and Medium Enterprises and Saudi Arabia’s regulator for co-working spaces, is cooperating with organizations in the public and the private sectors to strengthen the sector. Monsha’at is helping co-working space providers to improve the management of co-working spaces, their design and layout, and service quality. It is also working on many initiatives to increase general awareness of co-working spaces and their advantages, providing information about the requirements to start co-working spaces, and seeking different investment options to fund co-working spaces.

The creation of new co-working spaces is an exciting opportunity to open new ways of working in Saudi Arabia’s growing economy. There is a young population that seeks opportunities, and prefers the affordability, flexibility, camaraderie, and support that co-working spaces offer. By working together, the regulator, public bodies, and the private sector can strengthen the co-working space sector and help to develop places where people will innovate and where the economy will diversify.

* El Chaar is Principal with Strategy&, part of the PwC network

•• Alariefy is General Manager of Entrepreneurship Planning at Monsha’at