This article was originally published on Monday, 7 October 2019 at 7:00 A.M. SGT; it has since been updated to include a comment from CapitaLand.
Coworking giant WeWork’s turmoil has highlighted how the flexible-working segment has been driving office demand in Singapore, potentially signalling tougher times ahead for prime office rents, DBS said in a note last week.
Last week, WeWork shelved its plans for an IPO and Bloomberg reported,that “far-reaching” job cuts of around 2,000 positions, or 16 percent of the co-working giant’s workforce are expected by the end of the month. WeWork’s usual big-budget events were also on the chopping block, according to Bloomberg.
Singapore REITs have “manageable” exposure to coworking operators, DBS said, but added the sector still faced a cloudy future.
“A bigger concern lies if office demand potentially softens as coworking space demand tapers off following two to three years of aggressive expansion and slowing GDP growth,” DBS said in a note on 3 October.
“Given the aggressive expansion of coworking operators over the past few years, we estimate that demand from coworking operators has formed the bulk of net demand for office space in Singapore (ranging from 30 percent to 90 percent),” the note said.
Another 1.7 million square feet of office supply is expected in 2020-2021, the note said.
DBS pointed to data from Colliers showing flexible workspace in Singapore has tripled to 3.7 million square feet in net lettable area terms since 2015. Singapore also has the second highest number of coworking centers in Asia at 150, after Tokyo’s 350, DBS said.
The bank said there was a risk prime central business district (CBD) office rents– running around S$11.30 a square foot in the second quarter, up 26 percent from the lows of the second quarter of 2017 — may stagnate.
CapitaLand Commercial Trust has largest exposure
Even with WeWork’s aggressive expansion, the Singapore REITs — with the exception of CapitaLand Commercial Trust and Frasers Commercial Trust — have a 2 percent or less portfolio net lettable area exposure to the operator, DBS said.
CapitaLand Commercial Trust has the largest WeWork exposure at around 4 percent of its net lettable area, mainly due to its recent signing of a seven-year lease with WeWork for the entire 21 Collyer Quay property, DBS said.
A CapitaLand representative confirmed to Shenton Wire via email that “WeWork has entered into a binding lease agreement at 21 Collyer Quay for a period of seven years commencing in the second quarter of 2021. There is no change to this status.”
DBS said Frasers Commercial Trust has the second-largest WeWork exposure among Singapore-listed REITs, with 3 percent of its net lettable area leased to the operator, in a Perth, Australia, property.
City Development may be the only developer with WeWork exposure, with around 2 percent of its commercial portfolio’s net lettable area taken up by the coworking operator, DBS said. The bank added, the impact on the developer would likely be minimal given a diversified tenant base and office portfolio.