CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION

CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION FEBRUARY 2016

CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION Prelude Singapore s entrepreneurship scene just moved up one notch last year, with the Smart Nation initiative taking shape in an increasingly digitized world. Embarking on the journey to build the world s first Smart Nation, Singapore aims to improve the lives of its citizens through harnessing technology and big data analytics. The objective of the government is to encourage creative and innovative use of technology across all sectors, bringing about the transformation of the innovation-intensive economy in the next decade. The thriving start-up scene that ensued has also revolutionized the real estate space, and four major stakeholders are seen to have evolved to drive the co-working ecosystem: Operators Developers As start-up tenants are not in favor of traditional leases, co-working space operators have to innovate in order to keep up with the changing needs of these tenants. The concept of co-working, as we term it, which is similar to the sharing economy business model, is gaining popularity and has resulted in more operators entering the market. Developers/landlords have been more progressive as a key strategic partner working with co-working operators and start-up companies. They incubate tenants and at the same time, create a win-win situation for all, as there is potential for further earnings from boosting occupancies of existing buildings. Co-working Ecosystem Corporates Corporates are gaining market shares in the start-up scene as they launch their own innovation centers or accelerator programs. These innovation centers evolve into specialized co-working space that only serves the needs of each corporate as various tech and data specialists come together to incubate ideas. Government The Singapore government strives to create an innovation-based entrepreneurial ecosystem that complements the Smart Nation initiatives, enhancing the nation s competitiveness in the region. The government has also sunk in generous resources to ensure the real estate environment is conducive for start-ups even in the land scarce city-state. 2

A Cushman & Wakefield Publication 80% Locations of co-working spaces in Singapore of Singapore s co-working spaces are located outside CBD Operators Plug the Service Gap As the city-state pursues its Smart Nation vision, an increasing number of individuals has emerged as independent workers, entrepreneurs and freelancers. This group generally prefers flexi-work arrangement, particularly among the millennial. With the growing need to house these workers, Singapore s first co-working space, Hackerspace opened its door in 2009. In a short span of six years, more than 36 coworking offices can be found islandwide as of February 2016. Selling Points of Co-working Space The average co-worker only uses his/her space for less than 20 hours a week, according to UK firm Emergent Research. Thus, co-working operators are marketing more than just an office table; the selling points include the intangible qualities of working in a creative sphere such as lease flexibility, space for communal interactions and invitations to networking events and business contacts. FLEXIBILITY As these mobile tenants typically do not want to be tied down by traditional leases of two to three years, co-working operators charge a monthly membership fee for the use of hotdesking and shared facilities among other things. This is achieved via tweaking the number of membership purchases every month. In addition, operators also cater to the needs of the community by doing away with rental deposits, a boon to cash-strapped entrepreneurs. Memberships could cost as little as S$240 for up to 40 hours per month. This is considerably more affordable than a short term lease at a centrally-located service office where tenancies typically start from S$600 per person per month. COMMUNITY Community is an essential part of the coworking experience. Unlike serviced offices where workers from different companies are segregated into private rooms, co-working spaces often have large open areas for hotdesking, and devote a significant amount of space to break-out areas for collaboration. In general, most of these co-working spaces apportion at least 50% of their floor space to areas where co-workers can socialize, collaborate and exchange ideas. The lack of 3

CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION physical barriers helps to encourage communication, cross-pollination of ideas and foster creativity among workers. Today, such work settings are highly favored by the tech and creative industries as they allow workers to feel less pressured in their working environment. NETWORKING OPPORTUNITIES Break-out areas in JustCo s co-working office Another factor that sets co-working space apart is the availability of networking opportunities. Co-working members from the same operator are encouraged to host and join curated events as part of the community bonding. Some operators even extend professional services such as web designing, accounting and legal support to start-ups. The Hub Singapore, for instance, offers mentorship, incubation opportunities workshops and networking events to its 450- member community. Serviced Office Operators Wanting a Slice of the Pie The provision of co-working space enables serviced office operators to tap into a growing and lucrative source of revenue. As many coworkers do not utilize their space every single day, co-working space operators are able to sell more memberships than what the actual maximum physical capacity allows in the context of a traditional tenancy. This translates into higher revenue per floor area as compared to private serviced office rooms. Besides providing hot-desking spaces, the serviced office operators also incorporate private rooms as they help to generate good cash flow for the business until the co-working community grows to a critical mass. Co-working space at The Co 4

A Cushman & Wakefield Publication Rather than engaging in an intense price-war on rental incentives and subsidies, the coworking concept might just be the blue ocean strategy for landlords to gain a competitive advantage over peers as it could help to attract and retain quality tenants. One suggestion might be for landlords to consider bundling a portion of the vacant space together with committed space under a coworking concept for quality anchor tenants. Landlords could convert undesirable or nonperforming space to cater to the needs of tenants, while tenants will benefit from the extra option to rent the co-working space on an as-need basis. Developers Breaking Traditions Hot-desking and break-out areas at The Co At first glance, this type of leases are not attractive to landlords who prefer larger tenants with long leases over the co-working concept. Long-term leases not only help to ensure that landlords get a steady stream of the rental income that is essential for their asset value, they are also less costly to manage compared to short-term tenants. Use Co-working Concept as Hedge However, landlords could face intense competition as Singapore enters the next wave of office completions of approximately 3.6 million square feet (sf) of net lettable area in 2016. Rather than engaging in an intense price-war on rental incentives and subsidies, the co-working concept might be the blue ocean strategy for landlords to gain a competitive advantage over peers as it could help to attract and retain quality tenants. First Mover Advantage This concept could benefit the tech industry in particular as international tech firms in Singapore have been on an expansion trail since the global financial crisis in 2009. A basket of tech firms tracked by Cushman & Wakefield shows that their space requirements have increased by over 50% annually on average since they first set up permanent offices here. However, rigid terms in their existing lease terms are stopping them from instantaneously rescale their space requirements. Thus, the co-working concept presents itself as an ideal option for businesses to scale up or down depending on their performance without incurring hefty upfront rental costs. Indeed, some developers have already tapped into the potential of this niche market as they see it as the way forward. An example is WorkSpace at Keppel Tower where the landlord, Keppel Land, offers flexible office arrangements to tenants so as to increase the diversity of their tenant base, and at the same time, boost the occupancies in the existing buildings. 5

CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION Workspace at Keppel Corporates the Bigger Picture While Singapore s start-up scene has a long way to go before it can rival the scale seen in other global cities, many corporates are beginning to recognize the importance of innovation and creativity. In line with Singapore s Smart Nation plan and with the support of the Singapore government and partners, various corporations have launched incubators to bring in technology and analytical data professionals and form their own specialized teams. Innovation Labs Germinating from Corporations The banking sector saw HSBC launching a Fintech innovation lab in Singapore with the help and support from the Monetary Authority of Singapore (MAS). Its innovation lab helps to support the development and testing of the digital and mobile banking services. In the insurance sector, Metlife launched a 7,800 sf innovation center called LumenLab to disrupt new business models in the areas of wellness, wealth and retirement. Others which have joined the bandwagon to grow their resident innovation labs include DBS Bank, Accenture and Dell. Some corporates help to drive innovation via accelerators. These fixed-term, mentorshipdriven programs attract start-ups with the hope of obtaining venture capital at a later stage. Accelerators aspire to disrupt sectors which have remained relatively unscathed by the tech revolution. A prime example is Pi Labs, which aims to drive tech innovation in real estate. With Cushman & Wakefield as a strategic partner, Pi Labs is able to empower entrepreneurs with ready access to data and mentorship from experienced real estate professionals, enabling them to accurately gauge the pulse of the market and fine-tune their products. Moving forward, we expect an increasing number of corporations to make a concerted effort to start or expand their own innovation labs. Accelerator programs could also be initiated where corporates have a vested interest in the start-ups. This trend will help to grow the demand for real estate space, a boon for developers and landlords. 6

A Cushman & Wakefield Publication Pi Labs in London Corporation Industry Innovation Center Objective Tech Internet of Things (IoT) Lab Develop & test Dell and Intel solutions, allow for scalability testing Banking & Finance Insurance Banking & Finance Life Analytics Lab LumenLab HSBC Singapore Innovation Lab Process data from social media platforms to generate new digital innovations and sales leads Develop disruptive new business models in areas such as wellness, wealth and retirement Support development and testing of digital and mobile banking innovation Management Consulting Services Accenture Analytics Innovation Center Develop new approaches for use of analytics in key areas of services such as public safety, service delivery, workforce effectiveness etc. CORPORATE-DRIVEN INCUBATORS IN SINGAPORE The convergence of property and technology will transform the way we and our clients operate in the future. As a leading property adviser, Cushman & Wakefield is committed to property and software businesses who will shape the future of our cities and buildings and the way we work, shop and live. - Digby Flower Chairman, UK & Ireland - Cushman & Wakefield 7

CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION Government Growing with Homegrown Start-up The global start-up ecosystem ranking 2015 by Compass Twenty years ago, most would only associate budding start-ups with Silicon Valley due to its proximity to the top tertiary institutions and tech cluster. Today, start-up ecosystems similar to that of Silicon Valley is rapidly replicating itself around the world. In the 2015 Start-up Ecosystem Ranking conducted by Compass, Singapore clinched the top spot in Asia Pacific for its strong start-up ecosystem. Its business-friendly environment is currently a fertile ground for start-ups, with 2,400-3,600 tech start-ups calling it their homes. Singapore s start-up ecosystem ranks highest in Asia-Pacific Singapore has established itself as one of the leading innovation-driven economies as the level of entrepreneurship has risen considerably over the last decade. According to the Global Entrepreneurship Monitor 2014 Singapore Report, its total early-stage entrepreneurial activity (TEA) rate has consistently ranged between 10% - 12% for the past three years, in comparison to a TEA rate of about 5% in 2006. Singapore s Total Early-Stage Entrepreneurial Activity Rate 2014 10-12% 2006 5% 8

A Cushman & Wakefield Publication Government Playing a Pivotal Role in Singapore s Start-up Ecosystem The Singapore government has been heavily involved in the start-up ecosystem to push for more innovation with the establishment of JTC Launchpad @ one-north, also known as Block 71, the co-working enclave for start-ups and incubators. Affordable rents, along with an established vibrant community of start-ups and the ease of access to important support services and networking opportunities has led to it being the favored choice for budding entrepreneurs in the tech and media sectors. Its current capacity of approximately 430,000 sf now houses some 40 incubators and 600 start-ups as of Jan 2016 and it aims to grow its capacity to house 750 start-ups by 2017. Besides providing space for incubators, government financing such as the early stage venture funding (ESVF) scheme is available to local tech start-ups. More recently in September 2015, it was announced that the Singapore government would invest S$40 million through the ESVF scheme to encourage large local enterprises to support early stage Singapore tech companies in building up specific technology ecosystem which is crucial to Singapore in the shift to an innovation-driven economy. JTC Launchpad Current Capacity 600 Start-ups Future Capacity by 2017 750 Start-ups Source: JTC Our clients of co-working spaces and serviced offices in Singapore are keen to work with us in other markets, such as our next destination Shanghai. We aim to be the leader of serviced office and co-working space provider in Singapore and Asia-Pacific in the coming years. - Kong Wan Sing Founder & CEO of JustCo Conclusion Plenty of Room to Grow The new wave of co-working offices catering to other niche crowds has provided further room for private co-working operators to grow in the foreseeable future. A maturing ecosystem allows new entrepreneurs to find the required training, help, funding, and they in turn help their peers and the next generation entrepreneurs, who continue the cycle forward. Singapore is seen to be consciously creating this ecosystem in order to take the economy to the next phase forward, which could lead to itself drawing in more talents, mentors, funding, and eventually 9

CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION CO-WORKING IN SINGAPORE: CO-CREATING A SMART NATION setting off a virtuous cycle to create not only a business ecosystem, but also to help the whole ecosystem to flourish beyond its shores. More players from overseas are also looking to enter the Singapore market. Possible entrants in the horizon may include American co-working giant WeWork, Spaces by serviced office operator Regus, and the Hive, a co-working operator which has already established three locations in Hong Kong. At the same time, local co-working operators have expressed their intentions of extending their reach across the Asia Pacific. These new entrants, however, will need to play catch-up as the established players have had a significant lead time in the build-up of their communities. Nevertheless, their presence will be a boon to the co-working ecosystems here. Local co-working operators could learn from the success stories and employ tried-and-tested strategies by global co-working players such as WeWork. Some innovative strategies they could implement include negotiating with the landlords for longer rent-free periods, substantial fit-out subsidies in exchange for signing longer leases and generating additional revenue from selling healthcare and other business support services. As co-working space in Singapore evolves into the next phase of maturity, consumers are on the winning end as they will benefit from the wider range of concepts and greater product differentiation over time. Christine Li Director, Research +65 6232 0815 Christineli.mw@cushwake.com Goh Jia Ling Manager, Research +65 6332 0885 Jialing.goh@cushwake.com Nicholas Chia Analyst, Research +65 6332 0816 Nicolas.chia@cushwake.com 2016 Cushman & Wakefield. The material in this presentation has been prepared solely for information purposes, and is strictly confidential. Any disclosure, use, copying or circulation of this presentation (or the information contained within it) is strictly prohibited, unless you have obtained Cushman & Wakefield s prior written consent. The views expressed in this presentation are the views of the author and do not necessarily reflect the views of Cushman & Wakefield. Neither this presentation nor any part of it shall form the basis of, or be relied upon in connection with any offer, or act as an inducement to enter into any contract or commitment whatsoever. NO REPRESENTATION OR WARRANTY IS GIVEN, EXPRESS OR IMPLIED, AS TO THE ACCURACY OF THE INFORMATION CONTAINED WITHIN THIS PRESENTATION, AND CUSHMAN & WAKEFIELD IS UNDER NO OBLIGATION TO SUBSEQUENTLY CORRECT IT IN THE EVENT OF ERRORS. 10