SINGAPORE (NewsRise) -- Major Singapore landlords such as CapitaLand and City Developments have begun to carve out co-working spaces within their properties as the economy slows and tenant preferences change, lowering the cost of a desirable work location for many.
The trend could not only benefit small companies, start-ups and freelancers looking for an alternative to operating from a home or garage but could also benefit big companies seeking to better manage their rental costs.
Real-estate services firm Cushman & Wakefield estimates that there are 53 co-working locations in Singapore, up from 40 such spaces a year ago. Nearly a third are in the central business district, which is home to all the major banks and related institutions and services that make up Singapore's large financial services industry.
Such co-working facilities include desks and meeting rooms that can be rented by the hour, like the way clubs allocate facilities to their members. The system appeals primarily to smaller companies that do not want to commit to longer-term leases as well as individuals frequently on the move.
According to Paul MacAndrew, country head for Singapore and Thailand with Regus, the world's largest operator of serviced offices, flexible working spaces have become a key amenity in office buildings as tenants can increase or decrease their real estate requirements at short notice.
The provision of co-working spaces, alongside the more traditional serviced offices that can be rented for shorter periods, is helping property owners attract new categories of tenants as rentals remain sluggish.
Office vacancies hit a five-year high of 11.1% at the end of December, according to data from the Urban Redevelopment Authority. The vacancy rate stood at 10.4% at the end of the previous quarter.
At CDL, chief executive officer Grant Kelley views the company's ventures into co-working space facilities as future-proofing the business. "We are actively seeking investments in new economy platforms that complement our core real estate and hospitality businesses," Kelley said.
In January, CDL invested 72 million yuan ($10.5 million) for a 24% stake in Distrii, a Chinese co-working space operator, to help finance the latter's expansion. Distrii's plans include a facility covering more than 60,000 square feet at CDL's flagship building in the city center that is scheduled to open in the first half of 2018.
Earlier, CDL invested 100 million yuan in mamahome, one of China's fastest growing online apartment rental platforms that caters to both leisure travellers as well as business executives on short- to medium-term assignments and postings.
CapitaLand, Southeast Asia's biggest developer by assets, also sees co-working spaces as a building block to making its properties more appealing to a new breed of mobile office workers, a spokeswoman said.
In June, CapitaLand partnered co-working space operator Collective Works to open a 22,000 square feet facility at its Capital Tower headquarters in Singapore.
The Singapore firm has since tied up with co-working space operators in China and Vietnam, and is now redeveloping one of its Singapore malls such that it will offer a mix of retail and co-working space as well as "co-living" serviced residences that combine private rooms with shared facilities for work and leisure.
Venkat Iyer, a former Citigroup executive who is now a director at financial technology start-up DigiVation World, said the growing availability of shared facilities has been a boon for smaller firms since they only pay for what they require. As DigiVation has just one or two people in Singapore at any point in time, it has a pay-per-use agreement with the facility operator as well as a virtual office address.
Christine Li, Cushman's director and head of Singapore research, said the growing popularity of co-working spaces will enable landlords to tap a new source of revenue while they ride out the current glut in office space.
"As many co-workers do not utilize their space every single day, co-working space operators will be able to sell more memberships than what the actual maximum physical capacity allows in the context of a traditional tenancy. This translates into higher revenue per floor area," she said.
Other observers said the increasing popularity of co-working spaces also reflects the growing desire of large companies to manage their real-estate costs more efficiently. To better cater to these larger companies, landlords will need to provide a mix of serviced offices and co-working spaces.
"With an increasingly mobile workforce and a greater requirement for flexibility, we have seen some large companies opting for a combination of long-term leases and shorter-term serviced offices and co-working spaces to house their operations," CDL's Kelley said.
Companies that provide a mix of serviced offices and co-working spaces include Regus and local players such as Sapphire Peaks, which operates a large facility in Singapore Science Park, west of the city center. CapitaLand's partner Collective Works also provides private office spaces within its co-working facilities in Singapore.
Regus' clients include Japanese financial services giant Bank of Tokyo Mitsubishi, which operates an innovation centre at the Regus facility at Guoco Tower, Singapore's tallest office building.
Although Singapore has been rated the world's most expensive city for expatriates by the Economist Intelligence Unit, the lacklustre economy in recent years has hurt prime office rentals, which are lower than those in other Asian metropolises such as Hong Kong and Shanghai.
According to URA, office rents in Singapore fell 8.2% last year after dropping 6.5% in 2015.
Real estate services firm Savills said office rents could fall by another 10% this year, "given substantial unleased space in both newly completed and upcoming developments as well as secondary stock returned to the market," after tenants relocate.