Flexible office providers grew their footprints in Singapore by 680,000 square feet in 2017, jumping 44 percent from the previous year, according to a new report from Colliers International. Asia is the fastest-growing market for flexible office space, but as companies snap up lease agreements, questions remain about customer demand.
By the end of June, flexible office space companies occupied 2.7 million square feet in Singapore, up from 1 million square feet in 2015. Colliers projects 35 percent market growth this year.
Co-Working Takes Up Space
Co-working space has become big business, as evidenced by expansion from the likes of WeWork, Spaces and Campfire, all leading the way in Singapore this year. So far, Campfire has notched the city’s largest deal this year, leasing out 85,000 square feet at 139 Cecil Street between Raffles Place and Tanjong Pagar MRT stations.
WeWork and Spaces have both continued to expand in Singapore, growing their footprints by 173,000 square feet and 232,000 square feet respectively.
More than 85 percent of flexible workspace in the country today is in the city-state’s central business district. This is expected to decline over time, according to Colliers.
“We estimate that the flexible workspace footprint in Singapore could rise by 30-35 percent (or by about 670,000 square feet) year-on-year for the whole of 2018,” said Duncan White, head of office services at Colliers International in a statement. “However, given the tight vacancy rate for premium and Grade A office space in the CBD, we expect flexible workspace operators will increasingly target Grade B office properties and retail spaces to accommodate their growth.”
Former retail sites are also attractive to flexible workspace companies. Retail vacancy across Singapore was 7.3 percent in the second quarter, with 4.8 million square feet of vacant floor space. The result has been a greater willingness among landlords to rent to flexible workspace operators, according to Colliers International.
The city’s Orchard Road shopping strip has becoming an appealing target for co-working operators and now accounts for 8 percent of the country’s flexible office space. Though deals in this area are growing, it has a long way to go to catch up to the Raffles Place/New Downtown area with 41 percent of the market and Shenton Way/Tanjong Pagar with 29 percent.
End-User Demand May Lag Operator Supply
While office operators have been adding supply to the market end-users have been less active in occupying this new supply in some areas. There is some skepticism about the long-term viability of the flexible office space business model as the market rapidly expands. It has generally been seen as a positive thing in cities like Hong Kong, where such spaces offer a cheaper solution in one of the world’s most expensive property markets.
In Singapore, there are some signs that smaller players are starting to overextend themselves. According to the Colliers report, “The rapid supply growth of small-sized, single-space flexible workspace operators may have outpaced underlying market demand, which mainly stems from small-sized businesses or freelancers.”
In the city’s most popular areas, utilization rate for flexible workspace can be as high as 90 percent, according to the report. In less popular areas, however, that rate could be as low as 25 percent.