reporter2
19-10-22, 16:27
Limited office space, need for flexibility could support demand for co-working market
Oct 18, 2022
CO-WORKING demand in Singapore could remain firm as some firms opt to rein in capital expenditure, amid tight vacancies in the office market, rising rents and economic headwinds.
Occupancy has recovered from the troughs seen during the pandemic, when safe distancing measures kept employees home-bound, said several co-working operators.
“Post-pandemic, we have noticed a greater receptivity for co-working and flex space,” said Ho Seng Chee, the chief corporate officer of JustCo. “There is increased demand for co-working across all our markets in Asia-Pacific.” Ho also noted that more multinational corporations (MNCs) are using flexible workspaces as their primary office.
According to JustCo, its average occupancy globally has recovered to over 80 per cent, rising steadily since January this year. In Singapore, on average, the highest member activity detected on a working day in September this year was almost three times that for the same period last year. (*See amendment note below)
In the Republic, JustCo has 17 locations spanning over 500,000 square feet (sq ft), and is seeing more users now working out of different locations – as opposed to a single centre – in a nod to the rising popularity of the work-from-anywhere model. In November, it will open a 48,000 sq ft space at International Plaza.
At WeWork, which has 14 locations here, Q2 occupancy stood at 87 per cent, up 25 percentage points year on year. Daily footfall also rose 21 per cent quarter on quarter in Q2 2022.
IWG has 22 spaces in Singapore across four brands – Regus, Spaces, Signature and No 18 – covering a total net lettable area of 492,814 sq ft. It said visits to its Singapore centres have jumped nearly 65 per cent this year.
IWG’s country manager Darren Rogers said Singapore and the broader Asia-Pacific region will “play a significant part in the company’s growth trajectory”. In the next year, IWG is aiming to add over 1,000 new locations worldwide – up from 3,500 today – with an increasing focus on decentralised locations.
“(In Singapore), we’ve seen increasing footfall in our centres in the city-fringe and heartland areas within this year alone, including at Tampines, Jurong, Joo Chiat, Paya Lebar, Novena and Changi Business Park,” he said.
He estimates that companies save S$13,000 on average annually for every employee who works in a hybrid model, citing a combination of increased productivity, lower real estate costs, reduced absenteeism and turnover.
At The Executive Centre’s (TEC) Singapore spaces, occupancy has climbed to 95 per cent, from 75 per cent in Q3 2020. Its attendance rate, which slumped to around 10 to 15 per cent during the pandemic, has recovered to over 80 per cent.
Singapore has benefited from the displacement out of Hong Kong and the wave of Chinese tech firms setting up bases outside of China, although that trend has played out, reckons TEC chief executive officer Paul Salnikow.
WeWork’s revenue rose 37 per cent year on year to US$815 million in its latest Q2 results, though it posted a net loss of US$635 million, down from US$923 million a year ago. IWG registered a loss of about £80.3 million (S$128.1 million) for H1 2022, narrowing from £172.4 million a year ago, while revenue was up 23 per cent year on year to about £1.3 billion.
According to Cushman & Wakefield’s head of research Wong Xian Yang, demand for co-working space in Singapore has been fuelled by the finance, tech and professional services sectors, in addition to a need for flexibility as hybrid working grows more entrenched.
Tight supply in the central business district (CBD) could also prompt some companies to turn to co-working. Cushman & Wakefield data shows that CBD Grade A office rents rose 1.8 per cent quarter on quarter to S$10.35 per square foot (psf) in Q3 2022 while vacancy rates tightened to 3.6 per cent from 5.1 per cent in the last quarter. The real estate consultancy projects that CBD Grade A office rents will grow 5.5-6.5 per cent this year, and 2-4 per cent in 2023.
Wong thinks that co-working demand could remain resilient in 2023 since CBD Grade A office vacancy remains tight. He added: “As the economic outlook gets uncertain, occupiers may face capital expenditure (capex) constraints and there would be higher occupier demand for flexibility. Co-working spaces can be a plug-and-play solution, allowing occupiers to convert capex into operating expenditure.”
Wong also suggested that margins could improve for operators as rents escalate and vacancy remains tight. “Co-operators typically lock in long leases for direct leases,” he said, adding that market conditions could allow co-working operators to hike rates in an up-trending market.
However, the breakneck pace of expansion by co-working operators has certainly slowed from pre-pandemic times. Wong estimated that co-working operators have taken up 100,000 sq ft of office space year-to-date (as at Q3 2022), a small fraction of the one million sq ft that co-working operators leased in 2019.
By Wong’s count, flexible office spaces account for 6.5 per cent of CBD Grade A office stock. The lion’s share, or over 80 per cent of net lettable area, of co-working spaces is located within the CBD, although operators have also opened centres in offices and business parks outside the main business district.
Savills estimates that CBD Grade A office rents in Singapore will edge up 3 per cent in 2022, on the lack of new supply, rising conservancy charges and robust leasing momentum from tech companies earlier this year. It projects a further 3 per cent climb next year. However, executive director (research & consultancy) Alan Cheong cautioned: “As the market turns, the thing to watch out for in 2023 is emerging shadow space from the tech firms, who locked in long-term leases before funding dried up.”
As funding gets harder to come by, he feels there is a case to be made for co-working spaces. “Social media and tech startup companies will remain in co-working spaces until the market turns,” he said. Still, a downturn could mean customers will move out.
WeWork’s general manager Balder Tol, said: “The rise of hybrid work and limited Grade A space indicate companies have to be savvier and more strategic with their workplace strategy, with the focus to optimise their real estate commitment.”
According to TEC’s Salnikow, the current economic environment makes business forecasts challenging, but co-working gives clients the flexibility to beef up or reduce headcount as they see fit.
“We’re seeing our lead clients pulling back on their expansion plans and their commitments,” he said, adding that while companies are building up headcount in Asia, they are hesitant to plough capital towards building out offices. “We’re a hedge against uncertainty.” A single workstation at TEC’s Singapore centres could cost users S$1,400 per month.
MNCs account for 83 per cent of TEC’s global client base. TEC has six locations here, and will open new centres at Capital Square and Singapore Land Tower in January 2023 and January 2024, respectively, growing its total footprint from 172,417 sq ft to over 232,500 sq ft.
JustCo’s Ho expects the tight office market could benefit flexible workspace operators, but acknowledged that as base building rents increase, landing new sites will also require more cautious underwriting by co-working players.
Ho also doesn’t rule out some consolidation in the current climate, given that the industry is still in a nascent stage of development. The Great Room, for instance, was acquired by US-based Industrious earlier this year.
Meanwhile, Savills’ Cheong noted that co-working players have turned slightly more prudent, with some preferring not to ink leases with landlords to avoid the “very high burn rates” that could come with long-term leases. Instead, they act as an operator for the landlord and provide flex space in an office building to third party tenants, splitting revenues with the landlord.
*Amendment note: A previous version of this article said that the number of members using JustCo’s Singapore centres on weekdays in September had nearly trebled from the same month a year ago.
https://www.businesstimes.com.sg/real-estate/limited-office-space-need-for-flexibility-could-support-demand-for-co-working-market
Oct 18, 2022
CO-WORKING demand in Singapore could remain firm as some firms opt to rein in capital expenditure, amid tight vacancies in the office market, rising rents and economic headwinds.
Occupancy has recovered from the troughs seen during the pandemic, when safe distancing measures kept employees home-bound, said several co-working operators.
“Post-pandemic, we have noticed a greater receptivity for co-working and flex space,” said Ho Seng Chee, the chief corporate officer of JustCo. “There is increased demand for co-working across all our markets in Asia-Pacific.” Ho also noted that more multinational corporations (MNCs) are using flexible workspaces as their primary office.
According to JustCo, its average occupancy globally has recovered to over 80 per cent, rising steadily since January this year. In Singapore, on average, the highest member activity detected on a working day in September this year was almost three times that for the same period last year. (*See amendment note below)
In the Republic, JustCo has 17 locations spanning over 500,000 square feet (sq ft), and is seeing more users now working out of different locations – as opposed to a single centre – in a nod to the rising popularity of the work-from-anywhere model. In November, it will open a 48,000 sq ft space at International Plaza.
At WeWork, which has 14 locations here, Q2 occupancy stood at 87 per cent, up 25 percentage points year on year. Daily footfall also rose 21 per cent quarter on quarter in Q2 2022.
IWG has 22 spaces in Singapore across four brands – Regus, Spaces, Signature and No 18 – covering a total net lettable area of 492,814 sq ft. It said visits to its Singapore centres have jumped nearly 65 per cent this year.
IWG’s country manager Darren Rogers said Singapore and the broader Asia-Pacific region will “play a significant part in the company’s growth trajectory”. In the next year, IWG is aiming to add over 1,000 new locations worldwide – up from 3,500 today – with an increasing focus on decentralised locations.
“(In Singapore), we’ve seen increasing footfall in our centres in the city-fringe and heartland areas within this year alone, including at Tampines, Jurong, Joo Chiat, Paya Lebar, Novena and Changi Business Park,” he said.
He estimates that companies save S$13,000 on average annually for every employee who works in a hybrid model, citing a combination of increased productivity, lower real estate costs, reduced absenteeism and turnover.
At The Executive Centre’s (TEC) Singapore spaces, occupancy has climbed to 95 per cent, from 75 per cent in Q3 2020. Its attendance rate, which slumped to around 10 to 15 per cent during the pandemic, has recovered to over 80 per cent.
Singapore has benefited from the displacement out of Hong Kong and the wave of Chinese tech firms setting up bases outside of China, although that trend has played out, reckons TEC chief executive officer Paul Salnikow.
WeWork’s revenue rose 37 per cent year on year to US$815 million in its latest Q2 results, though it posted a net loss of US$635 million, down from US$923 million a year ago. IWG registered a loss of about £80.3 million (S$128.1 million) for H1 2022, narrowing from £172.4 million a year ago, while revenue was up 23 per cent year on year to about £1.3 billion.
According to Cushman & Wakefield’s head of research Wong Xian Yang, demand for co-working space in Singapore has been fuelled by the finance, tech and professional services sectors, in addition to a need for flexibility as hybrid working grows more entrenched.
Tight supply in the central business district (CBD) could also prompt some companies to turn to co-working. Cushman & Wakefield data shows that CBD Grade A office rents rose 1.8 per cent quarter on quarter to S$10.35 per square foot (psf) in Q3 2022 while vacancy rates tightened to 3.6 per cent from 5.1 per cent in the last quarter. The real estate consultancy projects that CBD Grade A office rents will grow 5.5-6.5 per cent this year, and 2-4 per cent in 2023.
Wong thinks that co-working demand could remain resilient in 2023 since CBD Grade A office vacancy remains tight. He added: “As the economic outlook gets uncertain, occupiers may face capital expenditure (capex) constraints and there would be higher occupier demand for flexibility. Co-working spaces can be a plug-and-play solution, allowing occupiers to convert capex into operating expenditure.”
Wong also suggested that margins could improve for operators as rents escalate and vacancy remains tight. “Co-operators typically lock in long leases for direct leases,” he said, adding that market conditions could allow co-working operators to hike rates in an up-trending market.
However, the breakneck pace of expansion by co-working operators has certainly slowed from pre-pandemic times. Wong estimated that co-working operators have taken up 100,000 sq ft of office space year-to-date (as at Q3 2022), a small fraction of the one million sq ft that co-working operators leased in 2019.
By Wong’s count, flexible office spaces account for 6.5 per cent of CBD Grade A office stock. The lion’s share, or over 80 per cent of net lettable area, of co-working spaces is located within the CBD, although operators have also opened centres in offices and business parks outside the main business district.
Savills estimates that CBD Grade A office rents in Singapore will edge up 3 per cent in 2022, on the lack of new supply, rising conservancy charges and robust leasing momentum from tech companies earlier this year. It projects a further 3 per cent climb next year. However, executive director (research & consultancy) Alan Cheong cautioned: “As the market turns, the thing to watch out for in 2023 is emerging shadow space from the tech firms, who locked in long-term leases before funding dried up.”
As funding gets harder to come by, he feels there is a case to be made for co-working spaces. “Social media and tech startup companies will remain in co-working spaces until the market turns,” he said. Still, a downturn could mean customers will move out.
WeWork’s general manager Balder Tol, said: “The rise of hybrid work and limited Grade A space indicate companies have to be savvier and more strategic with their workplace strategy, with the focus to optimise their real estate commitment.”
According to TEC’s Salnikow, the current economic environment makes business forecasts challenging, but co-working gives clients the flexibility to beef up or reduce headcount as they see fit.
“We’re seeing our lead clients pulling back on their expansion plans and their commitments,” he said, adding that while companies are building up headcount in Asia, they are hesitant to plough capital towards building out offices. “We’re a hedge against uncertainty.” A single workstation at TEC’s Singapore centres could cost users S$1,400 per month.
MNCs account for 83 per cent of TEC’s global client base. TEC has six locations here, and will open new centres at Capital Square and Singapore Land Tower in January 2023 and January 2024, respectively, growing its total footprint from 172,417 sq ft to over 232,500 sq ft.
JustCo’s Ho expects the tight office market could benefit flexible workspace operators, but acknowledged that as base building rents increase, landing new sites will also require more cautious underwriting by co-working players.
Ho also doesn’t rule out some consolidation in the current climate, given that the industry is still in a nascent stage of development. The Great Room, for instance, was acquired by US-based Industrious earlier this year.
Meanwhile, Savills’ Cheong noted that co-working players have turned slightly more prudent, with some preferring not to ink leases with landlords to avoid the “very high burn rates” that could come with long-term leases. Instead, they act as an operator for the landlord and provide flex space in an office building to third party tenants, splitting revenues with the landlord.
*Amendment note: A previous version of this article said that the number of members using JustCo’s Singapore centres on weekdays in September had nearly trebled from the same month a year ago.
https://www.businesstimes.com.sg/real-estate/limited-office-space-need-for-flexibility-could-support-demand-for-co-working-market