Singapore: More companies flocking to coworking spaces but rising costs hit operators

The Straits Times via Asia News Network

12:34 JST, December 19, 2022

Ms. Elizabeth Wu, 41, who is a mother of three, saw a business opportunity when she realized that there was no coworking space here that allowed parents to be near their children.

She cofounded Trehaus with Ms. Elaine Kim in 2016 to plug the market gap.

Trehaus is a coworking space at Funan integrated with its own preschool and childcare service, where parents can work and be near their children at the same time. The company also provides child-minding support.

The company, which has 47 employees, now houses about a dozen companies in its about 1,400-square-meter space and has 20 families using its coworking space and childcare services.

“We’ve seen an increase in people interested in using our services due to the recent push for flexible working and people reexamining their options for work. We also capture the niche crowd of parents who want to work near their children,” said Ms. Wu.

The demand for flexible workspaces is bouncing back, according to property consultancy CBRE in a report on Nov. 25.

Occupancy at Singapore’s flex space centers has recovered from an average of 50% to 60% during the pandemic to 80% to 90% on average by the third quarter of 2022, with the reopening of borders and resumption of back-to-office arrangements, the report showed.

Said CBRE: “Leasing volume by flex operators in office space amounted to 0.15 million square feet [13,940 square meters] in just the first nine months of 2022, overtaking 2021’s full-year volume of about 0.12 million square feet [11,150 square meters].”

Some coworking spaces, like Trehaus, put a different spin on the concept to stand out from competition.

Another example is Japanese-owned coworking hub and innovation platform One&Co, which aims to help Japanese companies expand into Singapore and vice versa. It does this through the networking opportunities that come from working in the same shared offices, which leads to collaboration among the companies. The brand was established by East Japan Railway Co. in 2019. Its private office is fully occupied with more than 250 companies in its office space spanning about 1,220 square meters at Twenty Anson. Inquiries to use One&Co’s space have doubled since 2021, said general manager Takahiko Ito.

One company that has benefited from One&Co’s cross-expansion platform is business design consultancy firm Nomura Design and Engineering Singapore, which set up operations here in 2008 and moved to One&Co’s space in May 2022.

Its executive vice president Ashida Akira, 47, said the relocation not only helped his employees become more interactive, but also boosted the number of projects they got by 30% due to the networking chances.

Coworking giants WeWork and JustCo saw an increase in demand for their services due to greater receptivity for flexible workspace solutions among workers. WeWork observed a rise in physical memberships of 23% year on year. Physical memberships at WeWork are occupied workstations in a given period.

Mr. Ho Seng Chee, chief corporate officer of JustCo, which has 18 centers here, said more multinational corporations now turn to flexible workspaces as their primary office. Around half its members are from MNCs.

Inflation and supply chain delays have created more uncertainty, especially for tenants looking for traditional office space, said Mr. Balder Tol, general manager for Australia and Southeast Asia at WeWork.

“Companies that are hiring and growing need space now, and the supply chain delays that the world is facing have further driven demand for our product. A traditional office tenant could spend up to 18 months sourcing and building out a space.

“With WeWork, members are able to take immediate occupancy, as nearly 80% of our members move in within two months,” he added.

However, despite the increased demand, coworking space operators face rising costs from inflation, with higher property rentals and electricity charges hurting profit margins.

Trehaus’ Ms. Wu said while the firm has not raised prices this year, she foresees that the bill for its services will have to go up by 10% as utility fees, cost of goods as well as maintenance and repair expenses have gone up by 10% to 20%.

“We’ve tried not to raise our prices to be in solidarity with our clients during the pandemic, but costs are going to be more of a problem next year with the goods and services tax [GST] hike,” she said. The GST rate will be raised from 7% to 8% from January 2023 and to 9% from 2024.

The increasing number of competitors is also a challenge that coworking companies could face, said One&Co’s managing director Wu Zhi Jie.

As at the third quarter of 2022, the flex space market spans approximately 344,670 square meters across 176 centers, quadrupling from 76,180 square meters across 85 centers in 2013, CBRE’s report showed.

“We have not increased our rates at all so far, but we may have to do so due to inflation driving up our costs,” added Mr. Wu, revealing that electricity charges have spiked by about 25%, along with a 5% uptick in other costs compared with 2021.

On the flip side, looming economic challenges could benefit coworking companies as well, said JustCo’s Mr. Ho.

“In tough economic times, customers typically want more flexibility in office leases in order to minimize fixed costs. Coworking can provide that flexibility whereas fixed-term leases cannot,” he added.

While the overall demand for office spaces could slow down in the near term on the back of rising global economic headwinds and more conservative corporate real estate demand, flex operators could take this opportunity to acquire new sites and expand, as the flex space market looks set for further growth owing to the expanding demand, said CBRE.

Said Mr. Ho: “With the looming economic uncertainty and base building rents forecasted to increase, securing new sites will require more cautious underwriting by coworking companies.”