Growing co-working market bolstering office rentals
Besides providing hip and cosy work locations, co-working spaces are also shaking up the real estate scene by bolstering office rentals.
Aggressive expansion plans by big co-working operators such as WeWork, along with the proliferation of boutique firms, have driven demand for office spaces in Singapore, strengthening office rentals, which rose 10 per cent last year.
According to property services provider Cushman & Wakefield, coworking spaces made up 21 per cent of overall office demand islandwide last year, up from 15 per cent in 2017.
The firm’s senior director and head of research, Ms Christine Li, said that while it is hard to judge the direct effect of co-working spaces on office rentals, it can be deduced that rents will be pushed up when office space is taken by co-working operators, given demand-supply logic.
“They take space off the market, usually signing leases for 10 to 15 years. For landlords leasing out these one to two floors, they tend to be more aggressive with the remaining space (in the building) and hold on to the asking rents.”
Ms Li said this would be so especially for Grade A offices in the Central Business District, as the upcoming supply of office space is thin.
Mr Desmond Sim, head of research for Singapore and South-east Asia at CBRE, agreed it is plausible that rental costs have been increased by the presence of co-working spaces, though, he said, demand has also been boosted by other indus- tries such as the growing tech sector.
“Co-working spaces in the past 12 months have been a good source of demand for office landlords, with strong expansion plans from the big (co-working) players,” he said, adding that co-working spaces generally pay market prices for the office rentals, with basic incentives similar to those for most other tenants.
He agreed that the increased occupancy emboldens building owners to ask for higher rents on remaining units. Mr Sim said those who may be hurt are investors who own strata-title space, as small firms opt for coworking options instead of longerterm leases with such investors.
According to CBRE, the co-working market size here was about 1.4 million sq ft as of the end of last Estimated expansion of the co-working market size in Singapore this year, to more than 2 million sq ft, from about 1.4 million sq ft as of the end of last year, according to CBRE. year. CBRE expects the market to expand by 50 per cent this year to more than 2 million sq ft.
Nonetheless, the effect of coworking spaces on the real estate market should not be overstated.
About 1 million sq ft of such spa- ces is located in office buildings – only about 1.6 per cent of the office stock in Singapore, said Mr Sim.
However, it may also mean that more expansion is in store, especially as more players invest in the co-working scene. Big developers are adapting their strategies to muscle in on the co-working landscape.
CapitaLand took a 50 per cent stake in co-working operator The Work Project Kingdom last October, while Keppel Land has created its own co-working brand, Kloud.
These developments come amid greater government recognition of the need for flexible work spaces in a changing, more fluid economy.
A 2014 initiative by the Infocomm Media Development Authority saw Smart Work Centres – pay- per-use workspaces with meeting rooms, Wi-Fi and photocopiers – set up at three public libraries here.
Industrial developer JTC Corporation is also keen to support the implementation of co-working spaces.
Mr Lim Junwei, director of the infocomm media and start-up cluster at the agency, said: “While JTC has not invested in co-working spaces, we are open to working with coworking operators that are interested in bringing their expertise and business into JTC estates.”
He added that JTC is currently working with co-working operators such as UCommune and Bash, who also provide programmes to support the start-up ecosystem at one-north.