SINGAPORE: Over the past three weeks, the local co-working market has seen two merger and acquisition (M&A) deals as operators, including prominent foreign players, jostle for market share amid increasing competition.
New York-based co-working giant WeWork on Monday (Aug 7) said it was acquiring Singapore’s Spacemob as part of its US$500 million (S$681 million) push into Southeast Asia and South Korea. This follows a merger between local player JustCo and China’s naked Hub on Jul 18 to form what was claimed to be Asia’s largest co-working operator.
According to estimates from property consultancy Cushman & Wakefield, there are now approximately 50 co-working spaces in Singapore, up from about 40 a year ago. Softer rents, alongside rising demand from freelancers, a thriving start-up community and bigger firms keeping an eye on spending, have underpinned the boom.
Even established developers have entered the fray. CapitaLand, for one, tied up with co-working space operator Collective Works last June to form a 50:50 joint venture that runs a 22,000 sq ft space at Capital Tower.
With the fiery growth pace, industry experts said the recent spate of consolidation is well within expectations, and expects more to come.
MERGER “MAKES A LOT OF SENSE”: JUSTCO
For JustCo, the co-working arm of homegrown space provider JustGroup, merger talks with its Chinese counterpart began about four months ago. Founder and CEO Kong Wan Sing said a merger “makes a lot of sense” given the company's plans to expand quickly, both in Singapore and overseas.
Mr Kong said his team spent the past one year building up JustCo's presence in China but only managed to open two locations in Shanghai. A lack of understanding of local government policies and regulations, as well as a local decision-making team, hampered expansion speed.
Similarly, naked Hub had been circling the Singapore market for the past 12 months in search for an entry point but to no avail.
With much-established behemoths, such as WeWork, eyeing a slice of the Asian market pie, joining forces seemed like "a fit" for both companies.
“(The merger) was a mutual decision,” Mr Kong told Channel NewsAsia. “There is WeWork and UrWork so we know we have to do it in the fastest speed. If we wanted to grow by ourselves, it will probably take us 3 to 4 years and we will be losing precious time… That’s why even WeWork wants to acquire somebody else.”
WeWork declined to comment, but the world's largest provider of shared working spaces said in its press release that its new investment reaffirmed the company’s “commitment to scaling (its) business across Asia”.
For Southeast Asia, the acquisition of Spacemob and its Singapore team will “accelerate” efforts, the release cited its Asia managing director Christian Lee as saying.
Spacemob, founded in early 2016 by Mr Turochas Fuad and backed by Temasek Holdings-linked Vertex Ventures, runs two locations in Singapore and one in Jakarta. Following the acquisition, Mr Fuad will oversee WeWork’s expansion in Southeast Asia as its managing director.
Industry experts told Channel NewsAsia that the acquisition is likely to give the US giant “a head start” in Singapore, where it has been a latecomer and faces challenges in securing prime locations due to exclusivity agreements between local landlords and other operators. This agreement, which has become a norm over the past two years, stipulates that most office buildings can only accommodate one co-working operator.
“The rental market has been weak, making it in the tenant's favour to argue for an addition of the clause, and most landlords have agreed. This means that it has become much harder for WeWork because most of the new buildings have found a co-working or serviced office provider,” said Cushman & Wakefield’s director of research Christine Li, citing projects under development like Marina One and Frasers Tower.
Agreeing, CBRE Research's head for Singapore and Southeast Asia Desmond Sim reckoned that having Spacemob under its wings will help to “make the gradient of the learning curve less steep” for WeWork in Singapore.
“I think they are still trying to look for opportunities to open here, but it will be a feather in the cap if they can acquire a relatively smaller player which can act as a catalyst to help them enter the market faster.”
“THIS IS A MARKET THAT IS BECOMING A BIG BOYS’ GAME”
Going forward, experts expect further consolidation as the market gets increasingly competitive.
Likening M&A deals to selfie sticks, Mr Sim explained: “With your hands, there's only so much angle you can take but after boosting your camera with an extended reach, you can cover a larger portion now.”
As local players look to expand their reach, a tie-up with an overseas operator will be the logical step to take. And as “the big boys get bigger”, smaller players will increasingly bear the heat of competition and some may buckle under the pressure.
“Unfortunately, this is a market that is becoming a big boys’ game,” said Mr Sim.
One recent casualty is women-only co-working space Woolf Works, which shuttered its doors in April after three years. In a note published on its website, founder Michaela Anchan wrote that the start-up's financial model was not working and it was time to cut losses.
For the "big boys" like JustCo, a further ramp-up in physical space is in the works.
Apart from previously announced spaces at the UIC Building and Marina One, the local player told Channel NewsAsia that it is planning for “three more mega projects” that will have a combined floor area of nearly 200,000 sq ft.
Robust demand formed the foundation of its expansion plans, said Mr Kong who revealed that JustCo’s latest space at the UIC building had a commitment rate of 80 per cent prior to its official opening.
It is also moving beyond the Singapore borders, with new spaces in Malaysia, Indonesia, Thailand and Vietnam ready by the first quarter of 2018.
“You can see the amount of money that WeWork is pouring into the region and that goes to show how untapped the market is,” said Mr Kong. “For Singapore, the penetration is still quite low so we will continue to build.”
Fellow market incumbent The Working Capitol (TWC) is also planning “a few” more new locations over the next 12 months, co-founder and CEO Ben Gattie told Channel NewsAsia.
TWC launched a 55,000-sq-ft facility along Robinson Road, two years after opening its first location at Chinatown which is known for having food and beverage (F&B), lifestyle and retail options all under one roof.
While consolidation is bound to happen in the market, Mr Gattie remains bullish and belives that the co-working model’s disruption of the traditional commercial office landscape remains in the “beginnings".
“Essentially, as co-working evolves, it will act as an alternative for all conventional office offerings and if you look at it that way, there’s a lot more potential."
This sense of optimism is also echoed by newer players, such as China’s UrWork.
The Beijing-headquartered co-working space provider opened a 6,889 sq ft space at the JTC LaunchPad @ one-north two months ago, offering leasing solutions to small- and medium-sized enterprises (SMEs).
Since then, it has achieved an occupancy rate of about 45 per cent, with 85 per cent being local SMEs in technology-related fields. Channel NewsAsia understands that UrWork has plans for another space in the Central Business District (CBD) by end-2017. Its second location will focus on SMEs from the financial industry.
Acknowledging the stiff competition in Singapore, community manger Liu Enxi said the Chinese operator stands out for its ability to facilitate business expansion and growth for start-ups targeting the Chinese market.
Apart from access to UrWork's locations across China, local SMEs who have UrWork membership will get to leverage on UrWork's in-house consultancy services, as well as other resources such as IT and marketing.
“Singapore is the first stop of our overseas expansion and I don't think we are slow because we are well positioned to face our competitors given that we know best how to help Singapore companies go into China,” Ms Liu told Channel NewsAsia.