Xymax Real Estate Institute

TOPIC REPORTClassification of Flexible Offices by TypeAn overview and outline of the growing market

May 2, 2023

The flexible office market has grown rapidly in recent years. Every year since 2020, Xymax Real Estate
Institute (“Xymax REI”) has conducted a quantitative analysis of the market’s growth trends based on thenumber and floor area of flexible offices and the number of operators in the 23 wards of Tokyo (“Tokyo 23
Wards”).*1*1 Flexible Office Market Survey 2023, released on February 7, 2023
https://www.xymax.co.jp/english/research/images/pdf/20230207.pdf

The classification of flexible offices and the standard terms to describe them have yet to be outlined, as
office styles have diversified and segmentalized in tandem with the sharp growth of the market. Flexible
offices are called by various names, such as rental offices, shared offices, serviced offices, satellite offices,and co-working offices. This makes it difficult, especially for companies and workers using flexible officesin the future, to understand the features and differences of each style and consider introducing them.
In this report, we classified the types of flexible offices and outlined their features in a joint study with
the Kosei Ishida Laboratory of Waseda University. This report aims to provide guidance to help companies
determine the style that suits them so that they can use flexible offices effectively.
In this report, we define “flexible office” as a “style of workplace provided by an operator mainly tocompanies and self-employed individuals under various forms of contract, including service contracts andfixed term building lease contracts, instead of a typical office lease contract” and use it as a generic termfor various styles such as shared offices and co-working offices.

TOPIC REPORT: Classification of Flexible Offices by TypeThe contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness. This report may not be
reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate InstituteHistory of the Diversification of Workplaces
We will start by looking back on the background of the diversification of workplaces. Figure 1 is achronology of how workplaces have changed over the years, diversifying from the conventional offices
owned or rented by the company.
Figure 1: Diversification of Workplaces

TOPIC REPORT: Classification of Flexible Offices by TypeThe contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness. This report may not be
reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate InstituteDuring the bubble economy, when office rents soared, companies opened satellite offices in inexpensive
properties in the suburbs to reduce office costs (phase I satellite offices). However, this trend vanished withthe collapse of the bubble economy due to the decline in rents in central Tokyo triggered by the burst of
the bubble and the insufficient telecommunication environment at that time.
Then, in the 1990s, when the Internet became widespread, rental office and serviced office brands such
as SERVCORP and Regus expanded into Japan and were used for offices by foreign firms entering thecountry. Since around 2003, when open innovation was advocated, there has been a supply of incubation
offices as a gathering place for startups, large companies aiming to create new businesses, investors, andother stakeholders. This was followed by the emergence of small coworking offices as a workplace forfreelancers and sole proprietors, whose number increased with the collapse of Lehman Brothers in 2008.
This type of office was mainly supplied in small and medium-sized buildings in Japan (small coworking
offices).
More recently, workplaces have been experiencing accelerated diversification due to changes in theenvironment surrounding companies, such as work style reforms, the spread of human capitalmanagement, and the outbreak of the COVID-19 pandemic. In the mid-2010s, for example, companies
began to adopt shared satellite offices where workers can work when they are out of the office without
returning to their own offices, as teleworking began to attract attention as a key feature of thegovernment’s work style reform initiative. In 2018, WeWork, a coworking office provider with an emphasison community features, entered the Japanese market to much hype (community-type coworking offices).
In early 2020, telework quickly took hold due to the outbreak of the COVID-19 pandemic and the rise indemand for infection control purposes. In particular, there was a sharp rise in companies allowing all
employees to work from home, which had previously been allowed mainly for certain employees withspecific reasons, such as childcare and nursing care, as an emergency measure. However, due to issues
such as the lack of a work environment at home and the difficulty in concentrating on work in a spaceshared with family members, shared satellite offices were increasingly provided in the suburbs as aworkplace close to workers’ homes. There has also been a diversification in the style of workplaces, suchas private booths for one person, karaoke rooms, hotels and restaurants serving as workplaces, andworkation facilities. Add to that the emergence of virtual offices (metaverse), which are not physical offices,and we can see that the concept of the workplace itself is also expanding.

TOPIC REPORT: Classification of Flexible Offices by TypeThe contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness. This report may not be
reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate InstituteClassification of Flexible Offices by TypeWe then configured the various workplaces presented in Figure 1 of the previous section into aschematic chart (Figure 2). Eight styles of offices fall under the category of a flexible office as defined by
Xymax REI. They are rental offices, serviced offices, incubation offices, community-type coworking offices,
small coworking offices, shared satellite offices, private booths for one person, and workation facilities.
Flexible offices have a mix of workplace styles with different features from various backgrounds. They
include places that substitute for the main office and places for teleworking. Companies choose the stylethat meets their needs, but the diversification and segmentation of the styles make it difficult to understandthe differences and values of each style.
Figure 2: Schematic Chart of Workplaces

TOPIC REPORT: Classification of Flexible Offices by TypeThe contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness. This report may not be
reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate InstituteTo outline the features of each style, we classified flexible offices by type of feature based on Figure 2.
Flexible offices can be categorized into the following two main types according to the characteristic of thespace: the “main office” type and the “telework support” type. Flexible offices that cannot be categorized
by the above are grouped as the “purpose-built” type (Figure 3).
Figure 3: Classification of Flexible Offices by Type

The “main office” type is used as an office for sole proprietors, small enterprises, and departments andproject teams of large companies. This type of flexible office is located in central business districts where
it is easy for employees to congregate. It offers more flexibility than a standard office, as companies canusually rent space for short periods and in small lots for their exclusive use. These offices may also beequipped with furnishing, fixtures, and internet connection, enabling companies to create an officeenvironment where they can start business immediately with low initial costs. They are called by thefollowing two names depending on the level of service provided.


Rental offices

Sole proprietors can switch on and off from work by establishing a base for work other than theirhome or gain the trust of business partners by having an office in a prime location in the central
business district. Small enterprises that cannot spend initial costs on offices also use these offices
as the main office. Large companies may rent only the necessary amount of these offices when
they require an office for a short-term project or when they need more space in their own officedue to changes in the headcount.
Serviced offices

These offices have features similar to rental offices but often offer more added services, such as
shared meeting rooms for the occupants, furnishing and fixtures, a staffed reception desk, andsecretarial services. They make a good impression on business partners as a high-grade
environment and enable companies to focus their resources on only the necessary operations.
TOPIC REPORT: Classification of Flexible Offices by TypeThe contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness. This report may not be
reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute
The “telework support” type is mainly used by companies as a place for their employees to telework.
These offices are located in large numbers across a wide area, from central business districts to the suburbs
and the provinces. Workers can choose from the network of offices an office that suits their day's schedule,
such as somewhere close to their home or near their client or the destination of their business trip. The
offices can be used by the minute or day. With the spread of telework, these offices address the greatest
demand in the market as they offer convenience and enable flexible work styles for most office workers.
They include the following two styles, which differ in where they are offered.


Shared satellite offices

These offices contain multiple types of facilities that address users’ needs within a zone of an
office building, such as private booths for one person, multi-person meeting rooms, telephonebooths, and open space. They are characterized by the different ways they are used dependingon the location. In central business districts, they are mainly used as touch-down offices bysalespersons preparing sales materials between client visits or close to a client. In the suburbs
near residential areas, they are used as a place for telework by workers who have difficulty working
from home due to family members living in the same space or equipment issues. The proximityof the workplace to the home is expected to offer such benefits as reducing employees’commuting stress and improving their work-life balance. These offices can also be used byworkers who want to concentrate on intensive work that is difficult to do in their main offices or
as a venue for online meetings. Workers can also choose an office located conveniently for theparticipants of a meeting or for hospitality. These offices are also called satellite offices, touchdown offices, or shared offices.


Private booths for one person

While shared satellite offices described above are a specially designed setup of the company’s
exclusive zone within an office building, private booths for one person are workspace booths thathave packaged the necessary equipment for solo work or online meetings. They can be installedin the common areas of office buildings and public spaces such as railway stations, making it easy
for users to drop by while on the go. Due to their high transport accessibility, these booths aremainly used by workers who are often on the move, such as salespersons.

TOPIC REPORT: Classification of Flexible Offices by TypeThe contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness. This report may not be
reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute
The “purpose-built” type specializes in a specific purpose and offers unique added services oradditional features by the facility. There are four main types of offices by purpose:

Entrepreneurship and new business development: Incubation offices

These offices are used by entrepreneurs and new business development departments of large
companies who aim to launch businesses through open innovation born from interaction andmatching among occupants, advice from mentors, and event support. These offices are locatedin central business districts, and public institutions and universities are often involved. They arealso characterized by a well-equipped office environment that supports entrepreneurship, suchas a complete set of furnishings and fixtures.


Coworking: Community-type coworking offices

These offices are used by freelancers, sole proprietors, startups, and new business development
departments of large companies for interaction and collaboration. They are located in central
business districts where workers can easily congregate and are well-equipped with facilities suchas a relaxation space, event space, and exclusive zones, in addition to open space. They also
facilitate events, support by community managers, and community-building that can be usefulfor business through a platform app. While it has become difficult to hold events and interact inperson as in the past since the outbreak of the pandemic, companies face a rising need toreconsider the size of their main office, which has seen a drop in occupancy due to the spread oftelework. Some companies rent exclusive zones within the facilities as their main office due to theability to adapt flexibly to changes in headcount and the percentage of workers coming to theoffice.


Coworking: Small coworking offices

In these offices, freelancers and sole proprietors share space with workers of different affiliations.
They offer a better working environment than the home, making it easier to hold meetings andprovide hospitality to customers.
Workation: Workation facilities

These flexible offices are suitable for workation, where people work in a natural setting or a uniqueplace such as a resort. They are used by individual workers to work while on vacation or bymultiple employees of a company for training, etc. Expected benefits include the generation of
new ideas by refreshing the mind and team building by spending time together in various
activities. Some workation plans combine working with accommodation, sightseeing, or
experiences.

TOPIC REPORT: Classification of Flexible Offices by TypeThe contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness. This report may not be
reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute
Figure 4 is an overview of further details of each type, such as facilities, added services, and examples ofuse.
Figure 4: Overview of Flexible Offices by TypeTOPIC REPORT: Classification of Flexible Offices by TypeThe contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness. This report may not be
reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate InstituteClassification of Flexible Office Operators by Type
Lastly, we outlined the major flexible office operators (Figure 5).
Figure 5: Classification of Major Flexible Office Operators by Type

Many operators have entered the flexible office business by leveraging the industry characteristics oftheir core business. Realtors stand out since they have an advantage in selecting the properties to run theoffices if they have developed or own buildings. They can also take advantage of their know-how in
operating and managing the offices. Developers, in particular, can enhance their tenants' convenience andthe property's value by providing flexible offices for residents in large, newly supplied buildings. Apart from
realtors, many flexible office operators are railway companies that seek to enhance the value of areas along
their railway lines by offering offices using their infrastructure. Companies from a wide range of othersectors have also entered the market.
The market also includes companies specializing in flexible offices, such as global brands operating in
the U.S., Europe, and Asia that have expanded into Japan.
With the growth of the market, there has also been a rise in the number of operators that offer services
for users to search and book offices that suit their needs from among several brands.
Companies in Figure 5 are only the major players. Many more operators are in the market, which is
becoming increasingly competitive. Some operators have partnered with each other to enhance theircompetitiveness. Especially for the “telework support” type of shared satellite offices, the operator's
strength is the number of offices and geographical coverage. Competitive operators with many offices overa wide area are expanding their networks by partnering with the offices of other operators to gain further
advantage.

TOPIC REPORT: Classification of Flexible Offices by TypeThe contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness. This report may not be
reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Real Estate Institute Corporation. All rights reserved.

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TOPIC REPORT｜Xymax Real Estate Institute

Conclusion
Flexible offices have diversified and expanded into various styles in accordance with socioeconomicchanges. However, there were no standard terms to describe them, and it was difficult for user companies
to understand the differences and values of each office style. This report provides an overview of the market
and a classification of flexible offices by type to promote understanding of user companies.
We classified flexible offices into the following three types according to their main feature: the “mainoffice” type, the “telework support” type, and the “purpose-built” type. This allowed us to outline thedifferent office styles, which had become complex and easily mixed up, by linking the names, characteristics,
and examples of use. It must be noted that the results of this report (Figures 3 and 4) are only a summaryof the present stage.
We also classified operators by their type and examined how operators from different sectors haveentered the market. Competition in the market is intensifying, and some operators have partnered witheach other. Going forward, operators are likely to be required to increase their offices further, expand theiroperations to the provinces, and create new services to address the changing demands of companies andworkers.
A hybrid work style will remain the mainstream even after the pandemic. Under such circumstances,companies will be required to develop their workplace strategies by choosing the style of flexible officesthat suits their work styles and purposes from a diverse range of flexible offices. We hope that our outlineof the flexible office market helps companies decide their future workplace strategies. Xymax REI intends
to continue releasing useful information by studying and researching office markets and work styles.

For further inquiries please contact below
Xymax Real Estate Institutehttps://soken.xymax.co.jp | E-MAIL: info-rei@xymax.co.jp

TOPIC REPORT: Classification of Flexible Offices by TypeThe contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness. This report may not be
reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Real Estate Institute Corporation. All rights reserved.

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