Next stage of CO-WORKING

By
/ EdgeProp Singapore
|
November 2, 2018 5:20 PM SGT

Jonathan O’Byrne, founder and CEO of Collective Works, talks about the shift in the co-working space and why he has chosen to exit as an operator

A first mover in the co-working sector, Jonathan O’Byrne, founder and CEO of Collective Works, has seen a radical shift in the business over the past two years. “The game is now around rapid expansion, growing market share and opening more square footage,” says O’Byrne, 32, an Irish-born expatriate who has lived in Singapore since 2010. “It’s completely different from when I started Collective Works; it was created because we wanted a space that was better than home and that empowered people to live their best lives.”
Collective Works' O'Byrne: People will look at space on a subscription basis. I will be able to bring my skills and expertise to provide a more complete workplace solution for the next-generation workforce (Photo Credit: Samuel Isaac Chua/EdgeProp Singapore)
According to Colliers International Singapore Research, flexible workspace stock in Singapore has nearly tripled since 2015 from about one million sq ft to about 2.7 million sq ft today. The CBD accounts for 84% of the co-working space, amounting to a footprint of 2.4 million sq ft as at June 2018, says Colliers.
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Last year recorded the steepest annual growth — a 44% increase y-o-y, which translated into a 680,000 sq ft increase — in co-working space. The forecast is that the sector will see another 30% to 35% y-o-y growth in 2018, or about 670,000 sq ft, given the aggressive expansion plans of co-working operators. The growth rate has been forecast to moderate to about 20% y-o-y next year (see chart belo).

‘Price war’

Amid the pursuit of market share and more locations, there has been a drop in the number of members psf. “Singapore is in the middle of a price war in co-working,” says O’Byrne.
This observation is backed by Colliers’ research, which found that incentives for members to sign on have ranged from one month’s free rent to six months’ free rent for a typical 12- to 24-month tenure for a flexible wokspace membership. Free trial offerings may run from a typical day pass to an entire month’s free usage.
The average daily utilisation rate varies widely from 25% in underperforming centres to above 90% in more popular locations, says Colliers’ report. “In parallel, the volume of closures and distressed acquisitions has accelerated over the past 18 months.”
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Collective Works is one of the most premium co-working spaces, along with The Great Room. In the CBD, average pricing for a dedicated desk is in the range of $700 to $900 per month, with the likes of Collective Works and The Great Room at the upper end of the range. Meanwhile, across Singapore, the average pricing for a hot desk in a co-working space is in the range of $390 to $600, according to Colliers’ research.
The top seven co-working and flexible space operators account for 63% of total space (see table). The remaining 37% of the overall market is shared among more than 110 operators. With new-to-market operators such as Campfire, Distrii and UCommune and the possible expansion and consolidation of small to midsized operators, there will be a continual “rebalancing” of market dynamics, adds Colliers.

Divergence in interests

Collective Works announced on Oct 4 that it had sold its co-working platform to The WorkProject Kingdom, a new joint venture between CapitaLand and The Work Project. O’Byrne believes it is time for him to exit as a co-working space provider: “It’s important to know, as a founder and CEO, where you are in the cycle,” he says. “I’m an innovator, somebody who comes in early in the cycle. Now, the market has shifted: It’s about scaling up, about building a more or less homogenised product, and that’s not something that I get excited about.”
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According to O’Byrne, the Collective Works space at both The Globe and Capital Tower is running at “high occupancy rates”, but he declines to disclose figures.
O’Byrne started Collective Works in December 2012 with a 2,000 sq ft space at The Globe, a 15-storey, Grade-B office building at the corner of Boon Tat Street and Cecil Street. It expanded at six-month intervals and grew to 10,000 sq ft spanning five floors by 2015. It has since vacated one floor, as some of the members moved to the Collective Works in Capital Tower when it opened in 2016. Collective Works now occupies about 8,000 sq ft at The Globe and is still the biggest tenant there today. “I was breaking even operationally within two months,” says O’Byrne. “It was at a different stage of the market then.”
Collective Works had formed a 50:50 joint venture with CapitaLand to launch the first Grade-A co-working space in the CBD in March 2016. It occupies an entire floor of 22,000 sq ft at Capital Tower. The community includes a mix of start-ups and blue-chip companies such as global venture capital firm 500 Startups, Rockefeller Foundation-backed NGOs, ING Bank’s innovation lab and Real Capital Analytics.
For CapitaLand, the Collective Works at Capital Tower was a test bed for premium co-working space. For O’Byrne, it was “my first foray in working with a [real estate investment trust], an asset management company and such institutions”. The 2½ years of working with CapitaLand have been “an incredible success”, says O’Byrne. “We looked at multiple different ways of expanding the relationship. As they learnt more about co-working and as I learnt more about large real estate organisations, we diverged and developed different interests.”
For CapitaLand, the Collective Works at Capital Tower was a test bed for premium co-working space (Photo Credit: Samuel Isaac Chua/EdgeProp Singapore)

Spreading its bets

Besides its joint venture with Collective Works, CapitaLand has invested in several other co-working operators. For instance, it signed a memorandum of understanding with UCommune (formerly UrWork) in December 2016 to open co-working spaces in its malls in China, starting with a 4,100 sq m space at Capita Mall Minzhongleyuan in Wuhan and a 1,300 sq m facility in CapitaMall Wangjing in Beijing with more than 600 workstations.
In September last year, CapitaLand’s corporate venture fund, C31 Ventures, participated in the Series-A funding of co-working operator The Great Room.
In May this year, CapitaLand launched its first co-working space in China with the opening of C3 (C Cube) in Shanghai. Located in CapitaLand’s Innov Center office project in Yangpu district, C3 occupies an area of 2,700 sq m (29,063 sq ft).
On Oct 2, CapitaLand announced that it had invested $27 million in a 50% stake in co-working operator The Work Project. The Work Project was founded by Junny Lee, a Korean-American turned Singapore citizen. The Work Project’s flagship space in Singapore is the 20,000 sq ft area on the fourth level of OUE Downtown Gallery at Shenton Way that opened in June last year.
This year, The Work Project opened a second location of 15,000 sq ft at Parkview Square, an office building on North Bridge Road in the CBD. Including its offering in Hong Kong, The Work Project operates a total space of 177,000 sq ft.
CapitaLand's "office of the future” strategy involves integrating a building’s conventional office space (core) and flexible space (flexi) — of which co-working is one of the types (Photo Credit: CapitaLand)

Pursuing ‘office of the future’ strategy

CapitaLand also announced the launch of its “office of the future” strategy. It involves integrating a building’s conventional office space (core) and flexible space (flexi) — of which co-working is one of the types.
“To build our ‘office of the future’ ecosystem, CapitaLand is going beyond traditional property management to providing more value- add services and community experiences for our office tenants,” says Lucas Loh, president (China and investment management) of CapitaLand Group, in a statement on Oct 2.
“This strategy will serve as a key differentiator from other office landlords and ensure that CapitaLand’s workplace offerings continue to be conducive for and complementary to tomorrow’s consumers and economy.”
CapitaLand will offer this mix of core and flexi space at Capital Tower and Asia Square Tower 2. The company had invested in The Work Project to facilitate the operation of flexi spaces in its buildings. Beyond co-working space, Capital Tower will offer a members-only club, collaboration spaces for project teams and the first movie theatre in the CBD. Fit-out works for the new offerings at Capital Tower and Asia Square Tower 2 are scheduled for completion in 1Q2019.
CapitaLand will offer this mix of core and flexi space at Capital Tower and Asia Square Tower 2. The company had invested in The Work Project to facilitate the operation of flexi spaces in its buildings. Junny Lee (pictured) is the founder of The Work Project (Photo Credit: Samuel Isaac Chua/EdgeProp Singapore)
O’Byrne will stay on at the co-working platform for six months to ensure that there will be “an elegant handover”. He adds: “It’s very easy to sell a business but it takes time for my team to integrate with the new team and for clients to acclimatise to the new community.”
The biggest occupier in terms of space and headcount at the Collective Works at Capital Tower is Space Executive, a recruitment firm with 37 people in Singapore. At The Globe, the biggest occupier is Credits, a blockchain platform with 41 workstations, three private meeting rooms and their own pantry in the building.
The typical membership agreement at Collective Works is 12 months, says O’Byrne, but there are companies that sign up for 24 months or even 48 months.
The Collective Works’ spaces at Capital Tower and The Globe are expected to be rebranded The Work Project. Meanwhile, O’Byrne will be leaving with the Collective Works brand. “They acquired the platform, the co-working operating business, but not me. In many ways, The Collective Works was as much me as the spaces.”

New direction

The Collective Works’ spaces at Capital Tower and The Globe are expected to be rebranded The Work Project (Photo Credit: Samuel Isaac Chua/EdgeProp Singapore)
O’Byrne is moving to the “next stage of co-working”. When it comes to the physical spaces and building a community, “the ideas behind co-working are not new”, he says.
“What co-working symbolises for small organisations is a tribe, a culture, and that’s what attracts them to a space — they want to be part of the tribe.”
Globally, co-working is a very challenging business, concedes O’Byrne. “You have very high fixed operating cost, a very high rotating revenue base. Only about 40% of the operators in the co-working space globally are profitable”.
O’Byrne is not interested in building more co-working spaces. Having conducted more than 800 sales tours of his co-working spaces, each lasting about 45 minutes, he reckons he has spent “tens of thousands of hours” in front of clients as well as teams looking to become members.
Globally, co-working is a very challenging business, concedes O’Byrne. “You have very high fixed operating cost, a very high rotating revenue base. Only about 40% of the operators in the co-working space globally are profitable”. O’Byrne is not interested in building more co-working spaces. Having conducted more than 800 sales tours of his co-working spaces, each lasting about 45 minutes, he reckons he has spent “tens of thousands of hours” in front of clients as well as teams looking to become members.
“I’ve developed some proprietary intellectual property around customer personas and designs for people’s needs,” he says. “My unique positioning in co-working is that I’ve spent six years in running the business. Very few people have been in the business as long as I have or have run it the way I have.”
O’Byrne is starting a consulting business to apply his wealth of knowledge and experience to managing the real estate of large organisations. “My fascination has always centred on human behaviour,” he says. “That’s why I love being in the front line.”
Flexible workspace operators, including co-working, occupy 4.5% of the Grade-A and premium office space in the CBD, making it among the top five occupiers, according to Colliers. Seventy-four per cent of prime CBD office space in Singapore is occupied by MNCs, however, with financial services making up 45%; professional services, 13%; energy and shipping, 10%; and technology, 6%.
As more flexible leasing models — a mix of conventional (or core) and flexible space options — are adopted, co-working will gradually proliferate to a wider cross-section of the occupier market, says Colliers.
In the future, people will not be leasing space the conventional way, adds O’Byrne. “People will look at space on a subscription basis.” As such, he believes he will be able to bring his skills and expertise to provide a more complete workplace solution “for the next-generation workforce”.