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Wednesday, 25 November 2020

How can SMEs get around expensive office space? Pt.II

How can SMEs get around expensive office space? Pt II – shared office spaces: SMEs have long struggled with rising office rental costs. Recently, this has pushed them to rely on residential units, putting them in breach of zoning regulations, we previously reported. This week, we look at how co-working and shared office spaces have grown since their first appearance in 2010. This developing market isn’t exactly budget, but it allows small businesses to be more flexible in establishing headquarters, generally with cheaper prices than commercial real estate.

The Greek Campus first pioneered the concept of shared office space in Egypt, Khaled Ismail, founder and chairman of angel investment fund KIAngel tells Enterprise. Over time, rental prices have risen and it’s now more akin to so-called smart villages catering to corporates like Microsoft and Uber than early-stage startups, he says. But it still focuses on providing a space for startups, argues Greek Campus community manager Muhammed Elamir: “We haven’t changed our target demographic or the mindset of the campus.” Of five standalone buildings, the pricing and design of two are specifically for startups, while the other three are for larger companies, he says. The Greek Campus currently provides startup space for minimum EGP 350/sqm. For businesses with 2-12 staff members, renting between 10-50 sqm would cost EGP 3.5k – 17.5k a month. By contrast, the least expensive listed commercial office space for rent in New Cairo ranges from EGP 17- 22k per month for offices of around 50 sqm.

Co-working and shared office companies have since flooded the capital and major cities, offering prime, clean, easily accessible locations with facilities. These include MQR, Makanak, The Hive, and Co Office. The trend has even attracted foreign investment, with international companies such as Regus picking up on SMEs’ need for shared office space.

Growth of an industry: Co-working spaces — where you pay a daily fee in exchange for workspace, either reserving in advance or as a walk-in — initially targeted individuals and freelancers, MQR co-founder Sherif Ashraf says. MQR first hosted small training sessions, private meetings, and spaces for freelancers. Co-working spaces remain popular, but many companies now focus on longer-term office rental agreements, generally renewed on a monthly or even quarterly basis. MQR has since rebranded, now offering office space to up-and-coming businesses, Ashraf says. Meanwhile, The Hive specifically targets mature businesses, corporates, multinationals, and well-funded startups, says general manager Seif Elkady. “We don’t really offer co-working or shared space, but private office space for rent.”

These companies provide businesses with a lower-cost alternative to commercial office spaces. Makanak offers a private office for one person starting at EGP 5.5-6k per month, while a five person office of 20-25 sqm starts at EGP 9k. MQR’s average prices for a 20 sqm office start at EGP 6k/month. But the exact prices and packages offered vary depending on location, time, number of team members, facilities, and other considerations, stress both Makanak’s founder, Moheb Zaki, and Ashraf. Co Office places itself a bit higher than the Greek Campus, charging EGP 4.5k/month for a small office for 1-2 people, EGP 9.9k/month for five people, and EGP 14.4k/month for 7-8 people.

You’re not just paying for space: Shared office spaces allow companies to forego paying for utilities and sometimes furniture as well. Additional services can include admin and secretarial work, company registration, catering, and access to conference rooms. There are also networking opportunities — particularly valuable for overseas companies, who won’t need to exert a lot of effort for insights into the Egyptian market, says Elamir.

Flexibility may be the biggest advantage: Clients value the model’s flexibility above all else, say sources. “We offer a professional environment, but with flexibility for different budgets,” says Zaki. Having the flexibility to expand or downsize, work in different locations, and access meeting rooms allows companies to focus on their work, says Elkady. “Flexibility and convenience are more in demand, as people see how productive the setting can be,” he adds.

The sector is expanding… Makanak now serves over 500 SMEs, with branches in central Cairo, the New Capital, Alexandria and Beni Sueif. Before covid-19, it planned to grow from 12 to 20 branches this year, says Zaki. In 2017, MQR began offering space in four locations across Cairo, and plans to open more branches in the near future, says Ashraf. The Greek Campus now manages and operates a startup hub in Saudi Arabia, and is constructing a new branch in the Mall of Arabia, which should be operational in early 2021, says Elamir.

… and creating new industries: The rapid growth of co-working spaces has spurred new startups that categorize, sort, and map Egypt’s co-working environment, such as Coworker and Hotdesk.

International and large Egyptian companies, and remote workers, see the benefits: German logistics company Impargo rents space at MQR for employees in Egypt, says Khaled Saqr, who leads expansion, so they can interact face-to-face in the office when needed or dispense with it for weeks without rent worries. Mohamed Hany convinced his Malaysian employers to let him work remotely, maximizing productivity while avoiding work from home distractions, he says. And Greek Campus clients include IT security company Trend Micro, Misr Capital Investment, Uber, Falak Accelerators, Mo4 Network, Udacity and Hawaya.

Many shared office spaces now have a mix of SMEs and more established companies: Greek Campus clients are now approximately 60% SMEs and 40% established businesses, with around 15% non-Egyptian businesses, says Elamir. Makanek clients include many multinationals, software engineers or developers, interior designers, and financial management consultants, with roughly 10% coming from overseas, says Zaki. The Hive has a mix of approximately 25% multinationals, 25% startups and 50% established Egyptian businesses, with around 25% of its total customer base being international, says Elkady.

So is shared office space the solution to soaring commercial office prices? For early and medium-stage companies, yes. Office spaces where SMEs can rent a private room and share facilities — based on long- or short-term agreements — seem to provide the best value for early-stage companies. The model offers SMEs a relatively affordable base, while they avoid the legal problems of basing their businesses in residential buildings.

NEXT WEEK: We look at how covid-19, and social distancing measures, have impacted this burgeoning sector that relies heavily on people going to an office.

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