Supply squeeze forces co-working operators to get creative
FLEXIBILITY and cost efficiency have made co-working spaces attractive in today’s hybrid work era, but rising rents and tight office supply are becoming new hurdles for operators in Singapore.
Availability of newly completed office space in the Central Business District (CBD), where co-working spaces are predominantly located, is limited. Only one new office development is in the pipeline to complete in the next few years. IOI Central Boulevard Towers, set to open in Q3 2023, is already in talks with prospective co-working operators.
Meanwhile, office rents continued increasing this year, even as demand from the tech sector has cooled.
While there has been a rise in what the real estate industry calls shadow space, or space that current occupiers are planning to vacate, this may not add to the available supply for co-working spaces if there is already a co-working operator in the building.
As a result, the growth of the co-working industry has been subdued. According to workspace solutions provider The Instant Group, demand for flexible workspaces in Singapore grew by 25 per cent in 2022 as compared with 2021, measured by enquiries for space. In contrast, the supply of new workspaces increased a modest 3 per cent over the same period.
Rates have risen too, with the average cost of a desk up by 15 per cent in Q1 2023 as compared with the whole of 2022.
“I don’t see rates going down as of yet,” said Gaurav Joshi, co-founder of flexible workspaces aggregator Workbuddy, who does not expect supply to pick up anytime soon.
“Operators are being more cautious,” he added. Many co-working operators are looking to sign management contracts, where they manage spaces for landlords for a fee, instead of taking on conventional leases, to reduce risk.
But landlords have been slow to warm to such partnership models, particularly for Grade A offices.
About 49 per cent of total co-working stock in Singapore was housed in Grade A office space in the CBD in 2021, according to Cushman & Wakefield. The number would have increased since WeWork’s launch of 21 Collyer Quay in September 2022.
“Co-working operators now have to be more creative in where they look for deals,” said Wong Xian Yang, research head at Cushman & Wakefield.
With the current supply squeeze in new office space and operators adopting a more conservative approach, Wong thinks that operators will look to Grade B offices in the CBD for expansion.
Landlords of older buildings with higher vacancy rates may be more open to management contracts.
Rents are also typically lower, a consideration which led new co-working space The Work Boulevard to open in UE BizHub Tower, a Grade B office in Anson Road, in June.
“It’s the CBD, but not paying the usual rents of the CBD,” said general manager Melanie Simpson, who also saw demand in the area and liked its vibrancy.
Some co-working operators are looking beyond the CBD altogether, with retail spaces emerging as a popular alternative.
Cushman’s Wong noted that it brings “higher footfall and the retail market is not as bullish as the Grade A office market, so landlords are more amenable to management contracts”.
JustCo opened its newest centre in Central Plaza in June, partnering investor Frasers Property under its asset-light strategy. Central Plaza is directly connected to shopping mall Tiong Bahru Plaza, providing the co-working space with a wide range of amenities.
Its city-fringe location is a convenient midpoint for businesses engaging counterparts in the Downtown Core or One-North, said Kong Wan Long, JustCo’s co-founder and chief commercial officer.
The co-working operator is no stranger to opening locations in malls, with spaces in Marina Square and Centrepoint.
JustCo also runs co-working spaces in One-North, Jurong Lake District and Tampines Central. These centres’ overall occupancy rate was over 80 per cent in the past year, comparable to that of JustCo centres in the CBD.
“There are businesses wanting to decentralise,” said Workbuddy’s Joshi. “They want to give their team the ability to be close to home or close to where their clients are.”
This is in line with the government’s decades-long policy to base employment outside the city centre and develop regional hubs, including a second CBD in Jurong Lake District.
Co-working operators have begun tapping this demand. In the last two years, flexible workspaces have sprung up in shopping malls, business parks and even MRT stations outside the CBD.
As the co-working market develops, Joshi expects suburban areas to capture most of the growth, even if co-working spaces there may be slightly smaller than the sprawling spaces currently in operation.
He added: “Wherever people live, I think there’d be flexible workspace operators around.”
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