Flexible workspaces to continue growing in 2020

EdgeProp Singapore |

December 26, 2019 5:45 AM SGT

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SINGAPORE (EDGEPROP) - Co-working spaces are the new norm and they’re set to get bigger. A recent CoworkingResources study estimates that by 2022, there could be more than 25,000 shared office spaces worldwide – a 42% increase from 2019.

In Singapore, industry watchers are also positive about the sector’s prospects moving forward. Property consultancy CBRE estimates the co-working market will take up 2.16 million sq ft in 2019, up from 1.41 million sq ft in 2018.

JLL’s head of leasing Chris Archibald says that co-working spaces are taking up 3 million sq ft to-date, compared to 2 million sq ft two years ago.

However, CBRE’s research head for Southeast Asia Desmond Sim says the sector could be seeing slower growth – it went from 81.3% in 2018 to 53.2% in 2019, he adds.

According to a separate report on real estate trends by CBRE, the number of flexible space locations have more than doubled while the total space occupied by co-working spaces has expanded threefold from 2013 to 2018.

There are currently over 200 flexible workspace centres in Singapore with about 100 operators. Also, as at 3Q2019 privately-owned co-working operators accounted for almost 37% of market share compared to the 44% of privately-owned serviced operators, notes Tricia Song, head of research for Singapore at Colliers International.

Core Collective opened its second branch – a family-friendly community and lifestyle space – at Dempsey in August (Credit: Albert Chua/ The Edge Singapore)

New players

In an effort to maintain their market share, more landlords are embracing flexible space offerings by either investing in flex-space operators or curating their own. One example is Australian-listed developer Lendlease which houses the 72,000 sq ft co-working space csuites in one of its three Grade-A office towers in Paya Lebar Quarter (PLQ).

According to the CBRE report, allocation of flexible offices in new buildings are from 10 to 15%, significantly higher than the industry average of 6%. As at June 2019, approximately two in five of all the office buildings tracked by CBRE Research has some sort of flexible office component. Over the next three years, this trend is expected to continue with several new developments entering the market, notes CBRE’s Sim.

While the predominant demand of agile workspaces are start-ups, Sim has observed that large corporations are also adopting a workplace strategy where its offices are split: The headquarters occupy a traditional office building while a separate ‘flex’ office portion is taken up with a flexible workspace operator. For example, Lendlease also has a portion of its staff working out of csuites, located directly below their main office.

“By creating such scalability in space efficiency, the core and flex model provides headroom for occupiers to weather the current economic uncertainty,” adds Sim. As companies face difficulties in gaining approval for headcount growth and capital expenditure, such an option would help result in more renewals or relocations to more efficient arrangements, he notes.

Co-working offerings have also evolved to target niche industries, a trend that CBRE anticipates will continue. For example, in the life sciences sector co-working spaces can help companies save on the high upfront costs of laboratory equipment. To that end, NSG Biolabs at Biopolis provides biotech start-ups with 15,000 sq ft of lab and office space.

Meanwhile, Core Collective by Aurum is targeting fitness and wellness firms. Following the success of its flagship branch on 79 Anson Road, it opened its second branch at Dempsey in August, occupying over 12,000 sq ft of indoor space and 130,000 sq ft of green outdoor area.

Australian-listed developer, Lendlease, houses csuites, its dedicated flexible workspace brand in one of its three Grade-A office towers in PLQ (Credit: Samuel Isaac Chua/ The Edge Singapore)

Rental slowdown

Despite a robust start to the year, the performance of Singapore’s office market moderated in 2H2019. In 1H2019, rents grew 5.4% while rental growth in the third quarter slowed to 1.5%, says Colliers’ Song, adding that Q4 rental growth to-date was flat.

She pins this to the economic slowdown that has affected sentiment across a broad base of industries. This in turn has resulted in a slower net absorption of office stock in the second half of the year.

As occupiers postpone expansion or relocation plans, this has resulted in a slightly higher vacancy and a slower rent growth by 4Q2019, she adds.

Given weaker economic sentiments, Grade A Core CBD office rents have continued on an upward trajectory in lieu of the tightening supply of prime office space, notes CBRE’s Sim. As at 3Q2019, office rents for the segment clocked $11.45 psf per month, representing nine consecutive quarters of growth and a 27.9% increase from the trough in 2Q2017.

Overall, Colliers’ Song expects net absorption for Grade A CBD office space for the full-year 2019 to reach around 1.19 million sq ft, a decline from 1.276 million sq ft in 2018.

Lendlease has a portion of its staff working out of csuites, located directly below their main office (Credit: Samuel Isaac Chua/ The Edge Singapore)

2020 Outlook

Although macroeconomic uncertainties are expected to weigh in on office demand in 2020, CBRE expects Grade A Core CBD rents to remain stable next year.

CBRE managing director Moray Armstrong predicts that leasing demand will come from established tech firms (particularly Chinese ones), private equity and family offices as well as professional services providers that are focusing on Singapore as a hub for further growth.

Colliers, too, believes that tech firms will lead the demand in the office market, remaining resilient while facing slower growth in 2020.

Data from Singapore’s Ministry of Trade and Industry (MTI) shows that the information and communications sector grew by 3.4% y-o-y, moderating from the 4.1% expansion in the previous quarter. It remains one of the highest-growth services sectors.

And while flexible workspace operators are expected to grow, Colliers’ Song says they are likely to do so at a more sustainable pace than the last few years as the sector approaches maturity and a tight supply. Consolidation is likely for smaller players as they get acquired or pushed out of the market, she adds.

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