By: | Posted on: Dec 06, 2019

SINGAPORE (EDGEPROP) - Consolidation is taking place in the co-working sector, as landlords turn cautious and co-working providers draw lessons from giant WeWork’s implosion

Street view of Cecil Street in the CBD (Photo: Albert Chua/EdgeProp Singapore)

Low Jeng-tek, CEO and director of Homestead Group, a Singapore-based real estate company that invests in and manages a portfolio of heritage properties, is a big believer in co-working. “It’s because of this,” he says, as he scans the crowd at Tangles, a sports café at Tanglin Club, and spots people working on their laptops. “The driver of co-working is real because millennials like such spaces,” observes Low.

The co-working narrative was also driven by the likes of US co-working giant WeWork, which was hailed as a unicorn in the league of Uber and Airbnb. “As tech plays, these companies were well-funded by investors and had high valuations,” says Low. “It was imperative for them to grow market share and ramp up occupancy. Profits could come later.”

That narrative ended abruptly after WeWork pulled its IPO at the end of September. Softbank, WeWork’s biggest investor, slashed the company’s valuation to less than US$5 billion (or less than $6.8 billion), according to reports, down 80% from the high of US$47 billion in January this year. WeWork announced last week that it is laying off 2,400 employees in an effort to stem losses.

To be sure, co-working in Singapore has taken off in a big way. The amount of co-working space has multiplied 8.5 times from about 400,000 sq ft at the end of 2016 to 3.4 million sq ft today, according to JLL. The number of operators has also more than doubled to 53 flex-space operators – both serviced office and co-working. JLL estimates that co-working space accounts for about 5% of the total office stock of 68 million sq ft across Singapore.

However, there were signs that consolidation was taking place even before WeWork imploded. For instance, two niche Singapore-based operators, Collision 8 and Found, merged to create Found8 in February this year. Last October marked the acquisition of co-working platform Collective Works by a joint venture between CapitaLand and The Work Project.

WeWork at Suntec City, one of more than 12 locations in Singapore (Photo: WeWork)

Campfire exits

Some co-working operators from overseas who had inked deals to take up space in Singapore have quietly bowed out. Word on the street is that Hong Kong-based co-working operator, Campfire Collaborative, will not be moving into 139 Cecil Street after all. Campfire could not be reached for comment.

A year ago, Campfire had announced that it would be taking up the entire 16 storeys of the new office tower at 139 Cecil Street. The former 11-storey building was extensively refurbished and five new floors were added. Facilities would include a sky pool and rooftop bar, according to Campfire in the announcement.

The new co-working space at Cecil Street was to span 85,000 sq ft, making it the biggest Campfire location. The co-working space operator has 20 locations, predominantly in Hong Kong as well as in London and Sydney.

On the back of Campfire’s debut, the owners of the Cecil Street building, DB2 Group and Vibrant Group, had put the property on the market for sale at a price tag of $218 million in March. However, no successful bids emerged at the close of the tender. The building is still on the market for sale as well as for lease.

Hong Kong co-working operator Campfire Collaborative will not be taking up the entire building at 139 Cecil Street (Photo: Albert Chua/EdgeProp Singapore)

Wotso leaves Singapore

Another example is Wotso, an Australian homegrown co-working provider. Its flagship space in Singapore was at The Quadrant on Cecil Street.

Wotso’s co-working space at The Quadrant was a joint venture between Australia Stock Exchange-listed (ASX-listed) property fund manager BlackWall Property Trust and Singapore-based firm Springboard Pte Ltd. The joint-venture company signed a five-year lease with the landlord that started towards the end of 2016 and was due to expire in 2021.

The landlord of The Quadrant is Homestead Group, which is in turn the master tenant of the entire building, on a 3+3+3 year lease from Singapore Land Authority. Built in the 1930s in the Art Deco style, The Quadrant was originally the regional headquarters of the Kwangtung Provincial Bank in Singapore. After World War II, it became the headquarters of the Four Seas Bank.

Last year, Homestead even proposed to the URA to have The Quadrant conserved. “We have been watching the co-working space, and we always thought The Quadrant would make an amazing co-working location,” says Homestead’s Low. “But we made a conscious decision not to operate the space ourselves.”

As such, Homestead engaged Wotso as the co-working provider for the top two floors of The Quadrant, with a total floor space of just over 10,000 sq ft. The co-working space occupies the fourth and fifth floors of the building, as well as the roof terrace. The fourth floor has a mix of fixed and hot-desking options with some office suites and meeting rooms. The fifth floor has been converted to multiple office suites. The roof terrace comes with a pantry and is used mainly as an event space.

The tenant on the lower floors of The Quadrant is The Black Swan bar and bistro. The first level is the main dining area of The Black Swan, with a private lounge on the mezzanine level, and a private room in the basement, which was where the bank vault used to be.

The Quadrant at Cecil Street, which has co-working space at the top two levels of the building, which was previously operated by Wotso, and now ClubCo (Photo: Albert Chua/EdgeProp SIngapore)

Spin-off, listing plans

Under the lease agreement, Wotso was to pay a fixed rent and a percentage of gross turnover to the landlord, Homestead. In the first year of operations, the space was more than 80% taken up. But by the time Wotso exited the space at the end of 2018, occupancy was hovering in the 50% to 60% range, relates Homestead’s Low.

As such, Homestead stepped in at the start of 2019 to take over the obligations and the running of the operations to ensure continuity for the co-working members there, adds Low.

According to BlackWall’s 2019 annual report (financial year-end in June), the group had disposed of its entire 60% stake in Springboard Management Services as at Dec 31, 2018. It also ceased operating the Wotso co-working facility in Singapore at the end of last year.

Even as Wotso exited Singapore, it established a foothold in Malaysia, having formed a joint venture with Malaysian-listed property developer UEM Sunrise in February 2018. Twelve months later, this February, the joint-venture partners announced the opening of their flagship co-working space of 14,000 sq ft at Mercu Summer Suites, a project by UEM Sunrise in the heart of Kuala Lumpur.

BlackWall has also announced its intention to spin off Wotso as a standalone business to be listed on the ASX before the end of the year.

Launched in 2014, Wotso has 18 co-working locations across Australia today, occupying 43,000 sq m (462,852 sq ft) of space in Brisbane, Sydney, Canberra, Adelaide and Tasmania.

Stuart Brown, CEO of BlackWall Property Funds and Wotso WorkSpace, could not be reached for comment.

The roof terrace at Wotso's flagship Singapore location, where occupancy was over 80% in the first year of operations (Photo: Samuel Isaac Chua/EdgeProp Singapore)

ClubCo takes over

Homestead has secured a new operator to take over Wotso’s remaining lease for the co-working space at The Quadrant since July this year. Called ClubCo, the co-working company was founded by Charlie Brazier sometime in 2016. “My theory was that people who go into co-working spaces still spend half their time in cafes, restaurants and bars. And we decided to put them together,” says the Australian serial entrepreneur.

Having moved to Singapore in 1998 to set up a distribution network for a textile company, Brazier is now a Singapore permanent resident and even plays rugby for the city-state. From textiles, Brazier then set up a furniture dealership business called BW Furniture in Singapore in 2007.

It was while he was operating the furniture business that he saw an opportunity to enter co-working. Brazier saw how small enterprises and even big multinational companies, including financial institutions, were moving towards more agile workspaces.

At that time, Brazier was a part-owner of a restaurant at China Square Central called Club Meatballs. There was an empty space at the back of the restaurant that he felt was “perfect as a co-working space”. Hence, he launched ClubCo in early 2017, with the first co-working space located behind Club Meatballs at 20 Cross Street.

However, the Club Meatballs restaurant and ClubCo space closed recently, and ClubCo had to vacate its premises to make way for the refurbishment of China Square Central by Frasers Property early this year.

The second ClubCo space, which was launched in early 2019, is on the upper floor of a conservation shophouse at Capital Square in the CBD. Middle Eastern restaurant Kazbar is the tenant on the first level.

The ClubCo Capital Square has about 50 members today, and is anchored by Accelerating Asia (Photo: ClubCo)

The anchor member at ClubCo Capital Square is Accelerating Asia, which runs programmes for start-ups and has taken up 35 desks in the space. There are 50 members at ClubCo Capital Square today.

Meanwhile, at The Quadrant, the first few months were “the transition period” as ClubCo took over the co-working space. According to Homestead’s Low, occupancy at that point was already about 80%. “ClubCo has done a great job managing the space,” he adds.

The co-working space at The Quadrant “is filling up fast”, says Brazier. There are 95 ClubCo members there today.

Launch of MultiCo partnerships

With two physical ClubCo co-working spaces in Singapore and over 140 members across both these spaces, Brazier feels it is now timely to launch MultiCo. The concept is based on a partnership with F&B outlets – bars, restaurants and cafes – where ClubCo members can work from during off-peak hours.

Ten F&B outlets have signed up with MultiCo, including The Black Swan at The Quadrant; Little Creatures, a brewery on Club Street; Pizza Express and Picotin Express, a bar-bistro-and-pizzeria, with multiple locations. Others who have joined in include The Exchange Singapore, the bar, restaurant and event space at Asia Square Tower 1; Cafe Melba at Goodman Arts Centre and Mediapolis; Bull and Bear at Far East Square; the Fairmont Hotel; and Rabbit Carrot Gun, a restaurant on East Coast Road.

Brazier My theory was that people who go into co-working spaces still spend half their time in cafes, restaurants and bars. And we decided to put them together (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Brazier is targeting to tie up with 30 F&B operators by next year. ClubCo members can therefore buy F&B packages along with their co-working membership. “From my perspective, it’s great because the business model is very scalable,” says Brazier. “It’s quite sustainable because you’re not relying on long leases and you’re working on partnerships with F&B outlets.”

He believes the MultiCo concept could extend to hotels and resorts too.

Lessons from WeWork

Co-working players could learn from WeWork’s missteps, reckons Brazier. “Co-working space providers ought to grow on the back of profitability,” he says. “That’s always been our strategy. We only raise money if we need to take on additional space.”

He also feels it is time to invest in technology before he can further expand ClubCo and MultiCo concept overseas. “As soon as that is in place, we will be looking at more outlets,” he says. “I was from Australia originally, and I have a lot of friends who own bars and restaurants in Bali, Phuket and other resorts.”

Another lesson Brazier learnt from WeWork’s debacle is to not overextend and take on too many big leases, which are a liability, he says. “Being less lease-driven and working with F&B operators to fill up underutilised space during the day is a more sustainable business model.”

At The Quadrant, ClubCo’s arrangement with Homestead is more of a partnership rather than a pure tenant-landlord relationship. “They support us and help us manage the space, and we share in the upside as we fill up the space,” says Brazier.

In the past, ClubCo’s challenge was having to miss out on new spaces as Brazier sought to raise capital. “Opportunities are never aligned with your profitability,” he says. However, new opportunities could open up as consolidation continues in the co-working sector.

Likewise, Homestead’s Low has learnt that “minus the hype, co-working like any business, is about being able to deliver on your promise,” he says. “We’re confident that ClubCo will continue to deliver.”

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