Landlords cash in on Singapore's coworking boom

Landlord-operated brands include csuites by Lendlease which occupies 72,000 sqft, whilst Guoco Midtown will set aside up to 97,500 sqft of their NLA for flexible spaces.

In the midst of the unprecedented growth in Singapore’s coworking scene, landlords are rising as one of the main beneficiaries of the flexible workspace trend. Major landlords in Singapore have either invested in a coworking operator or set up their own brands despite the leasing risk and possible lower valuation that these tie-ups may bring, according to CBRE.

Building owners have had to react to shifting market trends as real estate begins to switch from a transactional business model and lean towards a service and hospitality business. The growing demand for experience-driven focus, in which the user experience of the individual employee will continue to drive commercial real estate decision making, according to Colliers International.

“As the shape of occupier demand continues to shift, building owners must react and, as part of this, will have to decide whether to self-perform flexible workspace and amenity spaces, or; acquire, invest in or partner with an operator,” said Jonathan Wright, director of Flexible Workspaces Services, Asia, Colliers International.

Also read: Check out Singapore's largest co-working spaces

The normalisation of coworking brands has also seen to the addition of flexible spaces as part of a landlord’s portfolio. Coupled with a healthy financial status, their position and market share in this market is poised to expand significantly. Already, the csuites by Lendlease at Paya Lebar Quarter occupies 72,000 sqft, whilst Guoco Midtown will set aside up to 15% of its 650,000 sqft (up to 97,500 sqft) of office of their net leasable area for flexible and adaptable spaces.

“It is likely that the flexible office market will be dominated by landlords and a small handful of land private operators in time to come,” Desmond Sim, head of research, Southeast Asia, CBRE told Singapore Business Review.

Joining forces
According to Colliers, Singaporean market dynamics have allowed landlords to bring such operators into their asset mix in a trend that has encouraged the movement towards amenitisation in Singapore before other Asian markets. Partnerships have been observed such the $13.5m investment of real estate group CapitaLand in The Work Project for a 50% stake in the coworking brand. Meanwhile, agreements between landlords and coworking operators similar to the hotel operator model have also been observed in locations such as 20 Collyer Quay and Great World City.

Also read: Serviced office operators beat landlords in snapping up co-working stakes

“Operators must view building owners as strategic partners in order to unlock growth and guard against becoming disrupted themselves,” Wright said.

As the coworking market has grown, the percentage allocation for flexible offices, particularly in newly constructed buildings, has steadily increased to about 10-15% in contrast to the existing industry average of less than 6%, according to CBRE. Multinational companies (MNCs) have begun turning their attention to the benefits of coworking spaces, such as the flexibility of the leases, and brands have taken to competing by offering larger spaces and specialised offerings.

“In the APAC region, the sustained growth in the flexible space market is primarily fueled by multinational corporations,” according to Ginny Eckblad, co-founder of GorillaSpace. “Startups and freelancers continue to contribute to the growth of coworking, although at a lower rate.”

“More MNCs are seeing the value in incorporating flex space as part of their real estate strategy and growth, especially when there are innovative and collaborative benefits within the co-working ecosystem to identify growth opportunities as well as new areas of business,” said Darren Teo, Associate Director Research at Edmund Tie & Company.

The different coworking brands have coped with this changing market dynamic in their own ways. Although the offering of high-value amenities have been an overarching trend, dominant layers like WeWork, JustCo, and Spaces have noticeably occupying larger coworking spaces in an effort to cater to MNCs and other larger corporates. Meanwhile, The Great Room and the Work Project have placed special focus on offerings such as high value amenities like the latter’s gourmet pantry, privacy and security.

Also read: How The Great Room is riding on Asia's co-working wave

In recognition of the market shift, new market entrants have responded by taking up larger spaces - many which are still in construction - to accommodate big corporates. Data from Colliers shows that in three years, the average size of flexible workspace leases has more than doubled from 11,800 sqft in 2015 to 26,600 sqft in late 2018 in response to the booming needs of multinational corporations which typically require hundreds of desks.

Also read: Here's how small co-working space operators can wrestle with global giants to survive

"To stay competitive, coworking brands have also turned to offering networking and collaboration opportunities on proprietary software platforms to their members whilst others continue focusing on providing premium offerings, such as Campfire at 139 Cecil St. which provides multi-industry spaces, a children’s daycare with playground, a gym, a lap pool and a rooftop bar," said Teo.

Although there will always be room for well-run niche boutique offerings, and that there are certainly tenants which will prefer smaller spaces, CBRE Research has also noted that the smaller, standalone coworking setups will find it increasingly difficult to compete in terms of reach, pricing and scale. “Over the past two years, we have observed at least 10 boutique coworking locations, all less than 10,000 sqft, close down,” said Sim.

The smaller brands have found dealt with these challenges in their own ways, such as the merging of Collision 8 and Found into Found8 earlier in 2019, which now counts four locations in Singapore and one in Kuala Lumpur in its portfolio. Additionally, Collective Works was sold to The Work Project.  Singapore’s coworking market remains strong with the sector tipped to expand by 70% by end-2019. By Janelle Ann Lao

Photo from JustCo’s Facebook