Co-office spaces continue to encroach, tripling in space consumption since 2015. At this point, co-working spaces have lived up to their reputation as the Grab / Uber of the office sector. Office investors, take note:
What’s happening on the co-working scene?
In 2015, co-working spaces took up 1.2 million square feet in Net Lettable Area (NLA) of Singapore’s commercial space. Today, according to Colliers International, this has roughly tripled to 3.7 million square feet. Some five per cent of the CBD’s Grade A offices are now co-working spaces, and Colliers further predicts the NLA taken up by co-working spaces to grow 24 per cent this year.
There’s also a pattern of consolidation, however, with a few big names gobbling up the smaller ones. At present, WeWork, IWG, and JustGroup hold just over half (51 per cent) of the space. Colliers pointed out that small, single space operators (7,500 square feet or under) account for most of the closures.
The demand for co-working space is likely to increase
The first reason we’ll point out, is the scheme called [email protected]. This is a programme to facilitate faster growth in tech companies (you can read about it in the link).
The fresh intake of foreign manpower will benefit the rental market, in both residential and commercial properties. Besides the obvious need for accommodation, we’re likely to see businesses expand (thus requiring more office space), or the entrance of new start-ups and SMEs (which, again, require more office space).
The second, related reason is the type of companies we’re seeing more of. Singapore is positioning itself as a gateway for start-ups; we had around 2,800 tech start-ups in 2003, and the number was up to around 4,000 in 2017. According to PitchBook, venture funding here has increased from around US$800 million in 2013, to about US$10.5 billion last year.
Start-ups in general prefer co-working spaces. That’s because they often aren’t sure how quickly they’ll expand, or what their staff size will be like in the next few years. This is a problem when using conventional office spaces most of them have a three year lease, whereas co-working spaces can charge monthly.
Start-ups and smaller companies are also more focused on networking and locating key partners. This is easier in a co-working space, which also takes the effort to organise such meet-ups. A conventional office space, however, would isolate these start-ups.
As such, the influx of new companies are likely to gravitate more toward flexible working spaces, rather than traditional office rentals.
The third reason is that, as of 2015, there were 200,000 freelancers in Singapore, accounting for around nine per cent of resident employment. That number grows every year. And while many are undoubtedly gig economy workers with Grab, GoJek, etc., a growing portion are also freelance illustrators, photographers, web developers, etc.
These freelancers typically find that conventional office spaces are out of their budget. But they can afford hot-desking options in a co-working space, where start-ups are also potential sources of work. As the number of contract workers grow, the demand for co-working spaces will as well.
Is the trend sustainable?
Over the long term, there are rumblings that the answer may be no. Or at least, not in the current form of a few co-working giants burning cash to seize market share. WeWork, for instance, chalked up losses of US$1.6 billion in 2018.
But regardless of which co-working spaces can or can’t make it, one thing is clear: the business scene in Singapore is changing, and there is growing demand for flexible office space arrangements. Landlords who find a way to capitalise on that – either by joining the co-working gold rush, or coming up with a third alternative – are in a position to gain.