Co-working spaces are all the rage now. From WeWork’s leasing of Capitaland Commercial Trust’s HSBC Tower, to Great Room’s announcement of its fourth site in the iconic Raffles Hotel, office tenants are now spoilt for choices.
While we do not have data releases of co working supply in the market, we know that co working space has been increasing the amount of Grade A office supply without any new building permits/approval from URA. The reason is that many of these co working spaces have been leasing out what has previously been retail spaces. Examples of which is Spaces in One Raffles and JustCo in Marina Square. By being able to lease retail spaces for office use, these co working operators are effectively able to increase the supply of Grade A office space.
As a result of this increase supply, we are seeing a weaker growth trend in the Rental Index than we are in the Price Index. As long as investors continue to fund co working start ups, valuations for office property will continue to be elevated. However, the same dynamic is less prevalent in the rental market as co working spaces compete with each other and the more traditional office property managers to either retain or attract new tenants in order to achieve a high occupancy rate.
With the rapid adoption of co working amongst office space tenants, we should also see a gradual shift in the ‘stickiness’ of consumer behaviour. A tenant of a traditional office building may have reservations about shifting their entire office operations to a co working space. However, once it has made the first transition, it will become considerably foot loose and can just as easily switch to another operator given more attractive terms and facilities. What this means is that if co working operators cannot out compete each other in providing the market with a differentiated product, the next viable option to increase or maintain high occupancy at their respective premises will be to lower the asking rentals.
With all these in mind, it will be prudent to look at these unicorns with a pinch of salt and observe their economic resiliency in the ebb and flow of economic cycles. We hope that in learning where the market is at, you will have better knowledge of how and where to invest your money in Singapore for beginners.
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