This year, macroeconomic uncertainty has lifted inflationary pressures and operational costs for most corporate tenants in Singapore. Prominent co-working and flexible workspace operators report that larger MNCs have been less keen to lock themselves into long 10- or 15-year lease agreements this year.

Darren Rogers, country manager for IWG in Singapore, says business leaders have seen multiple benefits from implementing a hybrid work arrangement. “Amid the volatile economic environment, long-term leases make less sense for a lot of business because they need agility to scale up or down as required,” he adds.

Similarly, Balder Tol, general manager, of Australia and Southeast Asia, WeWork, says: “Despite the push for a full return to the office, many companies still give employees the option of only working from the office two or three days a week. Thus, it does not make financial sense for them to commit to huge office spaces with long-term leases.”

Read also: IWG to open four new centres in Malaysia between April to September

Yvonne Lim, managing director of Southeast Asia, The Executive Centre, echoes this sentiment. “Office demand is bolstered by the increasing ‘back-to-office’ momentum in Singapore as employers tighten hybrid working policies… But the trend of employers committing only 50% to 60% of their workspace requirement and having their employees [adopt hybrid work arrangements] is still common,” she says.

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More than 2.4 million sq ft of new Grade-A office supply is set to enter the Singapore office market next year as IOI Central Boulevard Towers (1.29 million sq ft), Labrador Tower (670,000 sq ft), and Keppel Towers (386,000 sq ft) reach completion. The most notable new office development this year was Guoco Midtown (709,000 sq ft), which is more than 90% occupied.

New business models and landlord partnerships

Corporate tenants, co-working operators, and landlords will be paying close attention to the direction of office rents next year as the injection of new supply typically causes a flight to quality when top-tier tenants move into the newest office space, vacating older stock for other companies. Moreover, high interest rates are expected to persist in 2024, pushing up the financing costs of landlords and asset owners.

“As the co-working sector in Singapore evolves, the business model is changing,” says Jaelle Ang, CEO of luxury co-working operator The Great Room. “It now goes beyond the traditional landlord and tenant relationships — shared revenue agreements and partnerships with landlords are all part of the discussions.”

Lim says that some landlords are more willing to partner trusted, flexible office providers. “Such partnerships allow landlords to leverage the expertise and reputation of flex operators while meeting the evolving needs of corporate tenants. This collaboration enables landlords and tenants to navigate the challenges of financing costs and rents in a mutually beneficial manner.”

Next year, all eyes will be on WeWork as it negotiates with its creditors and landlords. As WeWork is one of Singapore’s largest co-working and flexible workspace providers, its bankruptcy has sent a ripple of uncertainty through the local market.

Read also: WeWork goes bankrupt, capping co-working company’s downfall

On Nov 7, the company, which had gone public in 2021, filed for bankruptcy. On Nov 22, Reuters reported that WeWork has secured commitments for up to US$682.5 million ($916.2 million) in debtor-in-possession financing but is still seeking to address more than US$4 billion in debt and unsustainable future rents costs.

WeWork’s Tol says that there are no plans to shut or downsize its footprint in Singapore. But the company will end the year in the middle of a global exercise to “rationalise its real estate portfolio and meaningfully address our high cost and inflexible lease liabilities, so we can focus on enhancing our member experience”,  and conversations with landlords will be a part of the global rationalisation exercise, he explains.

He adds that the company has established Singapore as a priority market for WeWork globally. “This is supported by our strong occupancy, positive adoption of our space and solutions, and most importantly the diversity in companies that we support.”

Growth next year for WeWork in this region will come from growing corporate real estate needs from its global MNC tenants which will translate to interest in half-floor, full-floor, and multi-floor leases in 2024, says Tol. He notes that start-ups and SMEs with headquarters in its Singapore locations also look set to tap into its regional network to scale their operations next year by taking up private office spaces.

Fewer cubicles, more collaboration zones

This year saw the adoption of hybrid working arrangements formalised across many companies and industries, and thus employers’ corporate real estate needs have adapted accordingly, says Lim “We saw a shift towards flexible and agile workspace solutions, such as co-working, shared spaces and collaboration zones.” She adds that the office environment “has never been more essential” but users are now thinking more consciously about what productive activities are best done there.

This was a similar sentiment shared by Ang, who says: “With this change we recognise that the value of time spent in the office needs to focus on the high-value part of businesses through collaboration, innovation, employee well-being, and engagement.”

Read also: IWG Singapore opens 25th workspace in Singapore at Harbourfront Tower 2

The Great Room has had several opportunities to put this to the test this year as it adds three new co-working centres to its portfolio. Its maiden co-working centre in Sydney was launched in June, while it doubled its presence in Bangkok with the opening of its second co-working centre in the city in May. The company opened its sixth property in Singapore in a heritage shophouse in Chinatown in April.

Its growth this year is supported by its acquisition last year by US-based flexible workspace provider Industrious — which global real estate consultancy CBRE has a 40% stake in. The partnership has opened new opportunities for The Great Room to expand this year and over the coming years, says Ang. Next year, The Great Room will open a third centre in Bangkok’s Park Silom Grade-A development by NYE Estate and Minor International.

With most employees having the option to work from home some days of the week, their return to the office must be supported with more purpose and intention, says Tol. “They will prioritise focused work at home, but be more intentional about their interactions, and engage in high-value activities like brainstorming, ideation, and innovation when they return to the office.”

“We believe that the future of work lies in viewing business and lifestyle as part of a continuum, rather than separate entities that need to be juggled,” says Ang. The importance of staff engagement and retention has also grown significantly post-pandemic, as well as opportunities for casual and intentional interactions that make it easier to retain newer staff, she adds.

IWG is embarking on an ambitious long-term project to revitalise several of its older centres that are due for a refresh. The most significant is its Regus space at One Fullerton which opened its door 15 years ago. “It’s about time we gave it a full refresh. We plan to start fresh from a bare shell standard and then build it back up again with the design ethos of today — collaborative areas in lounges, focus booths, and engagement points around the space,” says Rogers.

Expensive fit-out costs persist

The emphasis on collaborations and employee-employer partnerships in the workspace will likely spur most co-working operators to update their workplace design in some locations to better address this need, says Tol. He adds that this year has seen a clear shift from cubicles and desks to open spaces, meeting rooms, and breakout areas to facilitate collaborative opportunities in the office environment. “However, designing and renovating the office in today’s economic climate can be financially challenging. Fit-out costs rose across the Southeast Asia region by an average of 18% this year,” he says.

Based on a Global Occupier Fit-Out Report published by Turner & Townsend last month, demand to both refit existing space and fit-out new space remains high this year. “Thus, businesses are being cautious and considered in how they approach this — they require a greater level of visibility on what targeted investments to their real estate needs will cost them,” says Nadia de Klerk, global head of occupier at Turner & Townsend.

According to the report, fit-out costs for Grade-A and high-spec offices in Singapore clocked in at about $3,299 per sq m, while the average fit-out costs for lower-grade offices here are about $2,772 per sq m.

This makes Singapore one of the most expensive cities in the region this year in terms of office refit and fit-out costs, trailing Sydney ($3,671 per sq m for Grade-A) and Tokyo ($3,965 per sq m). Other gateway cities like Hong Kong recorded average fit-out costs of $2,472per sq m for Grade-A stock, while fit-out costs in Seoul stood at approximately $2,248 per sq m.

De Klerk says that in most cases, the desire to remain flexible and the trend towards shortening lease cycles are leading to increased investment in moveable partitions and non-fixed furniture items which make it easier to accommodate a reconfiguration without a full-scale refurbishment or relocation.

She adds that talent retention and attraction is another factor driving office fit-out demands this year. “It is clear that the expectations of the current generation of employees are different… Breakout areas, state-of-the-art technology, and social spaces are now part and parcel of what workers are looking for in their office space,” says de Klerk.

Suburban presence

So far, most operators have focused on building up a presence in the city centre and CBD. IWG is the only company with 10 flexible workplace centres outside the city centre. Its latest addition is at Harbourfront Tower 2 where it launched an 11,000 sq ft Regus branded office space on the 11th floor of the office tower.

“We’ve been in Singapore for over 20 years, and globally we have been a key office space provider for 30 years… We’ve got to make sure we keep the relevant portfolio in our business that meets the customer’s needs today,” says Rogers.

Over the last two years, IWG has made it a point to expand into largely untested suburban and city-fringe locations, such as Balestier where it opened a Regus workspace at Hiap Hoe Building in March 2022. In April, it opened a new centre at 61 Robinson Road which is operated under its Regus brand.

“More than two-thirds of our customers say they will continue to work in a hybrid model, splitting their time between company headquarters in the city-centre, city-fringe and suburban co-working locations. This is very prevalent among office workers in Singapore,” says Rogers.

The year ahead

Most of the co-working operators that EdgeProp Singapore spoke to look to the year ahead with cautious optimism.

“The broad outlook for the Singapore office market in 2024 is positive, with several factors complementing its growth. The economy is expected to further gain momentum, leading to increased business activity and demand for office space,” says Lim. The company is ending the year with an average occupancy of over 95% across its seven locations here.

The Executive Centre will open a new three-storey centre at the newly refurbished Singapore Land Tower next month. Spanning 50,000 sq ft from the 45th to 47th floors, it will provide 490 workstations with premium fitouts and collaboration areas. According to Lim, pre-commitment is currently 45%.

The Great Room’s Ang says: “Though we see some headwinds in the prime office market segment due to changes in the way office spaces are utilised, we view the growth of other players in the co-working space as an encouraging sign of market maturation and segmentation.” She adds that specialisation among all players enables each optimise their marketing strategy and target market.

For WeWork, the pursuit of financial sustainability that sets all parties up for sustainable success will be a key goal in 2024. “Our commitment to this region is unwavering as we continue to work collaboratively with our landlord partners,” says Tol.

He says that going into 2024, most corporate tenants are in a better position than the year before to determine the hybrid work model best suited to their business needs, noting that many business leaders will prioritise a commitment-light real estate model.

“Many of our members are usually headquartered with us in one market, and they scale their presence in the region with our workplace solutions. The volatility of the economy also means they are likely taking a more conservative approach to workspace commitment,” says Tol.

Growth opportunities are also looking more viable in emerging business districts in Singapore such as Jurong Lake District and the planned Punggol Digital District. “The government has done a great job promoting decentralised working… As the MRT network expands and grows over the next few years, the new stations will be our target locations,” says Rogers.

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