(Singapore, Sep 24, 2019) Flexible workspaces may keep expanding to retail and hotel spaces on top of decentralising to fringe areas, as vacancy in the central business district tightens, according to a new Colliers Research.
The report says that flexible workspace, comprising coworking centres and serviced offices, has risen in prominence in recent years to become a mainstream real estate asset class globally.
Supported by robust demand from occupiers, the flexible workspace sector now accounts for 3.7 million sq ft of net lettable area (NLA) of commercial space island-wide – more than trebled from the 1.2 million sq ft in 2015.
Colliers Research projects that the total space takeup by the flexible workspace sector could grow by 24% in 2019 on continued pace of adoption. The pace of growth could likely slow to 15% in 2020, due to a higher base and tight vacancy.
Tricia Song (宋明蔚), Head of Research for Singapore at Colliers International, said, “Singapore is considered one of the most mature markets in Asia for flexible workspace. In the last three years, the sector has seen stellar growth, at a compound annual growth rate (CAGR) of 36% by NLA. We believe it will continue to advance and expand, given the still-low penetration rate of 5%. That said, given the tight vacancy in the CBD, we would expect flexible workspace operators to increasingly look at alternative locations outside the city.”
Data tracked by Colliers Research showed that 83% of the flexible workspace stock is located in the central business district (CBD), with 12% in the city fringe and 5% in suburban areas.
Within the CBD, flexible workspace is most concentrated in the Raffles Place/New Downtown micro-market (52%) – boosted by the lease of 200,000 sq ft of space at 21 Collyer Quay (HSBC Building) by WeWork.
The top seven flexible workspace operators now hold 65% of the market share, with the top three – WeWork, IWG, and JustGroup – holding 51% of the enlarged pie. This reflects consolidation in the industry, as the bigger operators have been scaling up their portfolios aggressively, while some of the smaller operators with no economies of scale were either acquired or squeezed out. Based on Colliers’ research, most of the closures came from small-sized, single-space operators, with an average floor space of 7,500 sq ft.
The industry is likely to remain competitive with the entrance of conventional landlords and global players, given a relatively transparent and fragmented market with little product differentiation.
Rick Thomas, Head of Occupier Services at Colliers International, said, “The stiffer competition in the sector should bring about enhanced product differentiation, with an increasing focus on amenitisation.”
“To stay competitive, we believe operators would have to remain nimble, customer-centric, and be flexible in customising space to meet evolving occupier needs. On the demand side, we expect more companies – including large corporates – to embrace the Flex and Core™ strategy in view of rising business uncertainties and increased adoption of flexible work arrangements by employers, ” he added.
Colliers Research has identified three key trends the sector that is set to see more growth and would shape the flexible workspace industry in Singapore: continued consolidation; expansion into retail/hotel space; and increased collaboration between landlords and operators.
