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Balancing Things Out: The Impact of Shared Spaces on the Balance Sheet

Workable

Workable Nairobi has launched its first coworking office space, designed intentionally for the corporate, multinational or NGO that is looking for a blend of professionalism and privacy, with collaboration and creativity that appeals to the modern worker.  A key feature of Workable’s space is the in-house concierge service that will ease up an organization’s time from mundane tasks to focusing on their core purpose. However, the real benefit of coworking spaces that organizations should look at is the impact of IFRS 16.

IFRS 16 is an International Financial Reporting Standard (IFRS) that provides guidance on accounting on leases as per the International Accounting Standards Board (IASB). This new leasing accounting standard that was rolled out early this year (2019) serves to differentiate the way short and long term leases are captured on the balance sheet.

According to a review by Savills, one of the world’s leading property agents, leases over 12 months will need to appear on the balance sheet both as an asset and a liability, thus incurring an annual interest charge. This is a significant change and tenants will need to review their office leases to determine the impact on the overall bottom line. The saving grace is that leases under 12 months are exempt from this new regulation as well as leases that are serviced agreements, such as those agreements typically used for coworking spaces. Spaces like Workable Nairobi that have control over the right of use, fall under this exemption for their occupants.

As organizations focus on empowering and enabling their workers to be more agile in a disruptive digital world, coworking spaces are increasingly becoming a key choice for office real estate. The financial impact of IFRS 16 may further accelerate conventional office leases being ditched for the coworking or shared services office agreements that are favorable to the balance sheet.

Recently, local news headlines highlighted that multinational giant Coca-Cola sold off their East Africa regional office building that was based in Nairobi’s prestigious business area, Upper Hill, in favour of a coworking workspace in Lavington.  Yes, they are now tenants and are paying rent to accommodate about 100 associates that are Nairobi-based serving sub-Saharan Africa. According to the East Africa Franchise General Manager, Ahmed Rady, the move was necessitated to provide a “more open and less formal” environment for employees as the firm focuses on diversification of products to match the needs of increasingly health-conscious consumers. This is in line with Coca-Cola’s “Workplace Vision 2020” agenda that is shifting its workspaces to be more open and collaborative. With the new IFRS 16 guidance, this is an added win-win for Coca-Cola.

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