Saudi Arabia’s workforce is in need of new co-working spaces as economy diversifies and transforms

• There is growing demand for co-working spaces in Saudi Arabia, but availability is limited, with only 40 co-working spaces in 2018
• Investing in co-working environments, in which entrepreneurs and SMEs can thrive, can play a key role in realizing Saudi Vision 2030’s objective of diversifying the economy
• Almost two-thirds of people utilizing co-working spaces globally are younger than 40 years of age. In Saudi Arabia, more than half of the population is under 40 years old

As Saudi Arabia’s economy continues to diversify and transform, its workplace needs are shifting. In line with global trends, the requirements of workplaces in the Kingdom have moved from long-term commitments in traditional office spaces to a more flexible, but sophisticated working environment, such as co-working spaces. Increasing the provision of these spaces – where freelancers, entrepreneurs, small and medium-sized enterprises (SMEs) can share offices and services – presents a major opportunity for investors to convert some of the country’s available commercial properties into environments in which companies of all sizes can thrive.

A joint study conducted by Monsha’at and Strategy&, part of the PwC network, entitled “Co-working space in Saudi Arabia: The promise and the potential” has highlighted that despite growing demand for co-working spaces in Saudi Arabia, their availability is limited and rents are relatively high. This is in stark contrast to the global co-working market, which has grown steadily for the past decade and in which growth is now accelerating.

Speaking about the rise of co-working spaces and its impact on the Saudi market, Hilal Halaoui, Partner with Strategy& Middle East, said: “The number of global co-working spaces has doubled in the past three years, and the number of people who use them globally has tripled. This demand for more modern workplaces is also being seen across the Kingdom, resulting in the workplace transforming from traditional to sophisticated. There is still a large supply shortage, however, and it is estimated that there are 3.4 co-working spaces in Saudi Arabia for every one million workers, compared to 32 for every million workers in the United States.”

The rise of co-working spaces globally has been primarily driven by technological advances, economic interest, as well as factors such as improved internet connectivity, reliability, speed, and access to cloud storage, which has eroded the need for a custom office.

Co-working space benefits include:

1. Affordability: Co-working spaces are cheaper overall than traditional office space, and users rent space that best fits their needs. This can range from a single desk to a full floor. They also offer basic, affordable business services on an as-needed basis, such as front desk services, executive assistant services, printing, access to meeting rooms, and mail service.
2. Flexibility: Co-working spaces are flexible and their size can be quickly increased or reduced. This is particularly useful for SMEs – as they are often either underutilizing their space or suffering a shortage of it. Such mismatches cause inefficiencies, and can lead to major disruptions in the workplace.
3. Community/Networking: Co-working spaces provide occupants with the ability to mix and network throughout the workday, which can lead to a creative exchange of ideas, collaboration, and exposure to technology.
4. Education/Support: The best co-working spaces offer a variety of training and community events. These could include speakers, workshops, or startup demo days. Some co-working spaces also offer support specific to startup and SME needs, such as incubation/acceleration programs and business clinics.

When studying the demographics, globally, almost two-thirds of those utilizing co-working space are younger than 40 years of age. In Saudi Arabia, more than half of the population is under 40 years old, which is precisely the demographic that wants co-working spaces. However, the supply shortage of co-working areas in Saudi Arabia means that major cities in the Kingdom command rates that are among the highest globally, disproportionate to those cities’ commercial real estate rental prices.

Speaking about the obstacles preventing growth in co-working spaces, Rabih El Chaar, Principal with Strategy& Middle East, said: “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”. “Globally, many co-working businesses are not profitable despite their growth. Companies therefore must be prepared to offer a unique value proposition that will carry them beyond the initial period of market stabilization and help them to survive, and profit, long term” added El Chaar.

To tackle this challenge, Monsha’at, a government body that supports, develops and nurtures the SME sector, is actively collaborating with organizations in the public sector (e.g. municipalities) as well as the private sector, (e.g. private equity and venture capital firms) to support and improve co-working spaces on a number of fronts.

Speaking about these areas, Mohammed A. Alariefy, General Manager of Entrepreneurship Planning at Monsha’at, said: “We have identified the challenges of establishing co-working spaces in the Kingdom, related to management capabilities, design, service quality, awareness, funding, and information. Investors who can overcome these challenges can help to address the urgent need for more co-working spaces and potentially benefit financially.”

Specifically, the issues that Monsha’at is taking action to resolve include:

1. Management capabilities: The country needs to attract more talent with experience managing co-working spaces.
2. Location and design: Too many co-working facilities are inconveniently located and/or suffer from poor layouts.
3. Service quality: The quality of co-working services offered can be improved.
4. Public awareness: General awareness can be improved as potential members and partners of co-working facilities are often unaware that the spaces exist.
5. Funding requirements: There is still limited access to the funding needed to build co-working facilities and enhance the quality of services.
6. Information access: There is limited access to information about the co-working market that could speed licensing and help develop growth strategies.

By tackling these issues, we believe that growth in this area will improve considerably. Investors have an opportunity to help build co-working space in Saudi Arabia to meet demand from freelancers, entrepreneurs, and SMEs - and help the country’s pursuit of Saudi Vision 2030 and a more diverse economy. Ultimately, a strong working relationship between the regulator, other public entities, and the private sector can address ecosystem needs and open the door to the development of these valuable centers of business innovation and diversity.