More M&As, rebalancing of portfolios and emergence of landlord flex space

/ EdgeProp Singapore |

June 3, 2022 9:00 AM SGT

Industrious acquired Singapore-based The Great Room (pictured) and Luxembourg-headquartered Welkin & Meraki on May 9 (Picture: The Great Room)

SINGAPORE (EDGEPROP) - CBRE-backed flexible workspace provider Industrious is said to have paid US$100 million ($136.6 million) in cash and stock on May 9 to acquire Singapore-based The Great Room and Luxembourg-headquartered Welkin & Meraki, giving the firm a foothold in Asia and Europe in one fell swoop.

The acquisition of The Great Room and Welkin & Meraki will add 350,000 sq ft to Industrious’ portfolio across six new markets, namely Bangkok, Hong Kong and Singapore in Asia; and Brussels, Eindhoven and Paris in Europe. Another 600,000 sq ft of new deals in key cities across Asia Pacific and Europe are in the pipeline.

The Great Room and Welkin & Meraki will continue operating under their respective brand names, and their leadership and staff will join Industrious.

Acquisition of The Great Room (Pictured: an office suite at The Great Room Afro-Asia) and Welkin & Meraki will add 350,000 sq ft to Industrious’ portfolio across six new markets (Photo: The Great Room)

The New York-headquartered Industrious has a presence in more than 50 markets across the US, after it signed 32 deals and added 1.1 million sq ft to its network of locations last year. Its rapid expansion came on the back of a US$200 million investment by CBRE in February 2021, which gave the latter a 40% stake in Industrious. The deal saw CBRE’s co-working brand Hana merged with Industrious, and the latter operating its locations in the US and UK.

In January this year, WeWork acquired Dallas-based Common Desk. Founded in 2012, Common Desk has established itself as a premier boutique flex space provider. It has a network of 23 locations across 13 cities in Texas and North Carolina. Common Desk serves 4,000 customers in those markets.

“M&As [mergers and acquisitions] are becoming more opportunistic,” says Sidharth Dhawan, CBRE regional head of agile real estate, Asia Pacific. M&As are now a means for entering new markets or for capturing market share in existing ones, he adds. Dhawan expects M&A activity to continue in the next two years.

WeWork at Robinson Road - EDGEPROP SINGAPORE

In January this year, WeWork (Pictured, WeWork at Robinson Road, Singapore) acquired Dallas-based Common Desk (Photo: Samuel Isaac Chua/EdgeProp Singapore)

More sustainable business models

The result is “a more sustainable business model for flexible workspace providers”, adds Dhawan, with growth being demand-driven rather than fuelled by venture capital funds, as it had been over the past three to four years.

One of the biggest deals in Hong Kong was the acquisition of The Executive Centre by a consortium made up of global investment firm KKR and Singapore-based investment firm Tiga Investments in June last year. Founded in Hong Kong by Paul Salnikow in 1994, The Executive Centre has 32,000 members across more than 150 centres in 32 cities across Greater China, North Asia, Southeast Asia, India, Australia and the Middle East. It is said to be Asia’s third largest flexible office provider with annual turnover in excess of US$237 million.

March this year saw the merger of The Office Group (TOG) and Fora to become “the premier flexible workspace company in the UK and Europe”. The combined group has 72 locations totalling 3.1 million sq ft, including London, Cambridge and Oxford in the UK; as well as Berlin, Frankfurt and Hamburg in Europe. It has plans to expand further into other European cities. Global investment firm Blackstone acquired a majority interest in TOG in June 2017. Meanwhile, Fora is backed by funds advised by London-based, real estate and private equity investment firm Brockton Capital.

Dhawan: Beyond M&A deals at the corporate level, there have been some targeted, site-specific takeover of spaces (Photo: CBRE)

This March also saw Switzerland-based flexible space provider IWG announce the merger of its digital assets with the online platform of flexible space broker The Instant Group. IWG, formerly known as Regus, was founded by Monaco-based English billionaire Mark Dixon 30 years ago.

‘Targeted site-specific takeovers’

Beyond such M&A deals at the corporate level, there have been some “targeted, site-specific takeover of spaces”, notably in Hong Kong and China, observes CBRE’s Dhawan. He sees it as “a rebalancing of portfolios by flexible workspace providers”.

Dhawan points to Tower 535 at Causeway Bay in Hong Kong where IWG moved in with its sixth Spaces flexible workspace last November. It was formerly WeWork’s flagship space in Hong Kong.

SPACES ONE RAFFLES PLACE - EDGEPROP SINGAPORE

IWG also took over WeWork’s space at Swire’s newly refurbished, 19-storey office building at 8 Queen’s Road East in Wanchai, Admiralty, in March. IWG’s Spaces will occupy the entire building, taking up 64,800 sq ft of space. It will have 900 workstations, 70 private offices and five floors dedicated to enterprise suites.

Last August, Hong Kong developer Hysan Development formed a joint venture with IWG for the exclusive rights to operate all IWG flexible workspace brands in Hong Kong and the Greater Bay Area (GBA). The joint venture will acquire and operate IWG’s 32 existing locations across the GBA and will continue to expand IWG’s presence in the region.

Flexible work schemes, work-life balance

With the growing demand for hybrid work, flexible workspace providers have become more relevant post-Covid. According to IWG in its May 23 research report, about nine in 10 (88%) employees said hybrid working is an important factor when looking for a new job this year. The research surveyed 2,000 UK office workers.

Occupiers are looking to provide different types of workspaces for employees. Pictured here is JustCo at The Centrepoint, Singapore (Photo: Samuel Isaac Chua/EdgeProp Singapore)

In Singapore, many employees are looking for “a holistic work experience, which includes flexible work schemes”, in addition to a higher salary, says the IWG report. “Work-life balance is the top motivator for changing employers, with 64% of Singaporeans citing it as their main driver for switching,” according to the report.

Occupiers are therefore looking to provide different types of workspaces for employees, says CBRE’s Dhawan. Some are looking for a mix of leased and flex spaces within the same building; others are seeking flex spaces in several locations, including buying memberships in co-working spaces so their employees have the flexibility of working at these spaces in addition to working at the main office, he adds.

“Office landlords in mature markets like Australia and Singapore are realising that they need to offer a spectrum of different solutions, and different kinds of spaces for tenants,” says Dhawan.

LEI KLOUD AT KEPPEL BAY TOWER - EDGEPROP SINGAPORE

Keppel Land’s co-working and serviced office suites are operated under Kloud, which it launched five years ago. Pictured is the flagship Kloud at Keppel Bay Tower (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Proactive landlords

Some landlords like Keppel Land have chosen to operate and manage their own flexible workspace offering. Keppel Land’s co-working and serviced office suites are operated under Kloud, which it launched five years ago.

CapitaLand, on the other hand, acquired a 50% stake in co-working operator The Work Project for $27 million three years ago. The two partners have announced their “office of the future” strategy, which integrates conventional office space and flexible workspace within commercial buildings. The latest and biggest space in The Work Project’s portfolio to date is the 69,100 sq ft space at the new 51-storey Grade-A office tower CapitaSpring, jointly owned and developed by CapitaLand Development, CapitaLand Integrated Commercial Trust and Mitsubishi Estate Co.

Meanwhile, GuocoLand’s new 30-storey office tower at Guoco Midtown offers corporate tenants a mix of private core spaces, shared “swing spaces” and public external workspaces. “Swing spaces” refer to temporary spaces within the same development that are available to tenants on short-term leases. It is aimed at catering for “the evolving space needs of corporate tenants, and the growing acceptance of hybrid workspaces”, said Valerie Wong, GuocoLand group general manager of asset management, at a press conference last week.

GUOCO MIDTOWN OFFICE TOWER - EDGEPROP SINGAPORE

An office suite on the eighth floor of the new 30-storey office tower at Guoco Midtown that offers flexible workspace for tenants (Photo: Samuel Isaac Chua/EdgeProp Singapore)

“Landlords in Singapore are very proactive as they realise that they need to provide such solutions for tenants,” notes CBRE’s Dhawan. He sees more landlords focusing on hospitality and tech, as well as on offering different types of spaces to meet the needs of tenants.

“Tenants want options in leases too,” he says. Instead of standard 3+3 year leases, landlords could offer tenants shorter leases of one or two years. “The need for flexibility among occupiers will remain in a post-pandemic environment,” he adds.

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