Seven big operators now hold 63% of the market.
Singapore’s flexible workspace sector took up 680,000 sqft of space in 2017, a 44% surge from a year ago and the steepest annual growth in the sector’s history, Colliers International revealed. Moreover, it is now one of the top five occupier sectors in the Singapore office market, accounting for 4.5% of CBD Premium and Grade A office stock.
According to a report, the majority of the Singapore market’s total flexible workspace footprint – about 2.3 million sqft or 84% - is located within the CBD. More recently, flexible workspace operators have also set up in locations at the fringe of the CBD, in addition to the initial core clusters around Raffles Place.
The increasing adoption of a ‘flex’ office component as part of corporations’ commercial leasing strategy – in sectors including banking and financial services, insurance, and technology - will be a crucial catalyst for the sustainable, long-term growth of the flexible workspace sector, Colliers said. “The growth of flexible workspace should loosely support net absorption in Singapore’s office sector over 2018-2022,” it added.
As at 30 June 2018, the top seven flexible workspace players in Singapore controlled about 63% of the market. They were: IWG (which includes brands like Spaces and Regus); WeWork; JustGroup (the parent company of the JustCo and JustOffice brands); The Executive Centre; Servcorp; Campfire; and The Great Room. The remaining 37% of the flexible workspace market in Singapore is shared among more than 110 other operators.
Colliers International head of office services Duncan White commented, “Growth in the sector will remain fairly robust. We estimate that the flexible workspace footprint in Singapore could rise by 30-35% (or by about 670,000 sqft) year-on-year for the whole of 2018.”
However, given the tight vacancy rate for Premium and Grade A office space in the CBD, White said flexible workspace operators will increasingly target Grade B office properties and retail spaces to accommodate their growth. “This expansion in non-core CBD locations and decentralised markets will offer a wider range of choice and cost-alignment for potential flexible workspace occupiers,” he added.
Retail-to-flexible workspace conversions are also expected to pick up pace in the years ahead. “Simultaneously, there appears to be rising interest among flexible workspace operators in expanding within Orchard Road, Singapore’s prime shopping district,” Colliers said.
Recent leasing deals in Orchard Road included: a 15,000 sqft lease by The Great Room at Ngee Ann City Tower B; JustCo taking up 16,000 sqft at Macdonald House; Spaces’ new location spanning 35,000 sqft at TripleOne Somerset; and new-to-market CoCRE8 which leased 6,200 sqft of office space at International Building. All four deals marked the respective operators’ first foray into the Orchard Road area.
Colliers International senior analyst of research JM Tan added that retail vacancy stood at 7.3% as at the end of Q2 2018, with 4.8 million sqft of vacant floor area across shopping centres and retail podiums islandwide, whilst Central Region retail rents have chalked up a long-running decline over the past 13 quarters.
“These factors may have prompted landlords to explore leasing to flexible workspace operators, in a bid to achieve more stabilised occupancy for their retail properties. The trade-off is lower gross rental income for the property as flexible workspace operators will be paying office rents, which are usually lower than retail rents,” she said.
Colliers’ data further revealed that the flexible workspace footprint in Orchard Road currently accounts for about 8% of the islandwide total by square footage. The highest concentration of flexible workspace centres remains in Raffles Place/ New Downtown and Shenton Way/ Tanjong Pagar, which host 41% and 29% of Singapore’s total flexible workspace footprint respectively.
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