CapitaLand on Tuesday announced its “office of the future” strategy, which aims to integrate co-working style “flexible office space” into the developer’s traditional commercial projects. The Singaporean real estate giant says it is already at work implementing the new strategy in its Capital Tower and Asia Square Tower 2 buildings in downtown Singapore.
To begin taking action on the approach, CapitaLand has agreed to pay S$27 million ($19.65 million) to acquire 50 percent of Singaporean co-working operator The Work Project, which operates a co-working space in Hong Kong’s Causeway Bay and a pair of sites in Singapore. As part of the deal, The Work Project has agreed to lease space at Capital Tower and Asia Square Tower 2 from CapitaLand Commercial Trust, the manager of the two office buildings.
The deal will put 41,000 square feet of co-working space into Asia Square 2, just over one year after CapitaLand Commercial Trust, the real estate group’s listed trust for commercial assets, spent approximately S$2.1 billion (then $1.5 billion) to acquire the landmark asset in the city’s Marina Bay in the largest office transaction in Singapore in 2017.
GoldiLand and the Three Co-Workers
CapitaLand has been toying with ways to integrate co-working into its projects since 2016, when it formed a joint venture with Singapore-based operator Collective Works to transform the 12th floor of Capital Tower into a flexible office.
Then in 2017, the developer’s corporate venture fund, C31 Ventures, led a $5 million investment in another Singaporean flexible space operator, the Great Room. This May, CapitaLand opened a co-working centre of its own, C3 (“C Cube”) in its Innov Center building in Shanghai’s Yangpu district.
Now the government-linked builder appears confident that it has picked a permanent partner from among an increasingly-crowded co-working arena by putting its cash into The Work Project and giving the operator access to two of its top-grade towers.
“As the global workforce becomes more mobile and the demand for flexible work arrangements rises, office tenants require dynamic work spaces and customer-centric workplace solutions that promote productivity, improve staff retention and encourage an innovation culture,” said Lucas Loh, President of China & Investment Management of CapitaLand Group.
Under what CapitaLand refers to as its “core-flex model,” enterprise-level office tenants can use the flexible working facility to accommodate expansion or temporary needs, while small and medium businesses could be based in the co-working space with the opportunity to take longer term leases for full or half floors as they grow.
Colliers pointed out that a flex and core model is a tool for occupiers to drive savings in their real estate by taking long term commitments on their “core” space and leveraging a flexible workspace operator for the “flex” part.
“With landlords now recognizing the need for this in their assets and portfolios, it demonstrates proof of concept and we foresee the flex and core model being a key tool in occupier strategy going forward,” said Jonathan Wright, director of flexible workspace services for Asia at Colliers International.
With office costs rising in the region, there are signs that flexible space is catching on with corporate tenants.
According to Colliers Flexible Workspace Outlook Report 2018, the average leasing term for flexible office tenants is now over 24 months in Asia, up from 12 months in 2013. The report also shows that among Asia’s top 200 occupiers, 56 percent said they were already using flexible workspace in some capacity while 91 percent were considering using it.
New Leasing Deal with The Work Project
Under the terms of CapitaLand’s new deal, The Work Project, which was founded two years ago by Singapore-based entrepreneur Junny Lee, will lease 41,000 square feet (3,809 square metres) of office space at Asia Square Tower 2 for four years, starting from January 1st, 2019, and is taking another 31,000 square feet space spread out over two floors at Capital Tower from January 1st, 2019 to Jan 15th, 2024.
The Work Project and CapitaLand joint venture will be paying an estimated S$43.4 million to rent the 72,000 square feet office in the next five years, according to local media the Strait Times.
Upon completion of the fit-out work for the new co-working spaces, CapitaLand looks forward to providing some value-added services for tenants in its prime buildings, such as a members-only club and a movie theatre.