Analysts believe that demand from start-ups, freelancers and entrepreneurs will support the industry.

Despite WeWork’s recent woes which forced it to withdraw an initial public offering, the coworking business will be here to stay, reported The Business Times citing Jefferies and DBS.

WeWork’s issues may hasten consolidation among operators, but Jefferies analyst Krishna Guha believes in the coworking business model’s viability here as traditional tenants are embracing a “core plus flexible” concept, while smaller firms are looking to ease business expansion and lower fixed costs.

More tasks are done by cross-functional project teams who relocate to different countries upon a project’s end, he added.

A Credit Suisse report, meanwhile, has said poor sentiment on the company could negatively affect demand for coworking spaces amid a slowing down of the gross domestic product growth, in turn hurting Singapore’s office Reits.

DBS Equity Research analysts Derek Tan and Rachel Tan believe, however, that demand from start-ups, freelancers and entrepreneurs will support the industry.

An important consideration is who operates the coworking space and those backed by developers or landlords such as The Work Project by CapitaLand and Distrii by City Developments, DBS added.

Even though the country’s coworking space has tripled since 2015, its 3.7 million sq ft of net lettable area (NLA) is only around five percent of island-wide office space.

DBS noted S-Reits’ (Singapore real estate investment trusts) exposure to WeWork is only two percent or less in terms of portfolio NLA, with the exception of Frasers Commercial Trust (FCOT) and CapitaLand Commercial Trust (CCT).

CCT has the biggest exposure to WeWork at around four percent of the total NLA, mainly because of a seven-year lease it finalised with WeWork for 21 Collyer Quay starting Q2 2021.

“In the worse case scenario where WeWork fails to undertake the lease, there is still time for CCT to find alternative tenants as the building sits on a prime location in the central business district,” said DBS.

Taking into account the lease in its Perth commercial building, FCOT has the second-biggest exposure, with three percent of its NLA leased to WeWork.

DBS estimates that since 2015, 30 to 90 percent of net demand for Singapore office space has been coming from coworking operators.

This may slow down in the years to come, DBS cautioned.

Guha, meanwhile, believes that the Reits should be able to weather the slowdown as rents terminating in the next couple of years are now below market rates by more than 10 percentage points.

“Stable unemployment rate can mitigate negative effects in coworking and lower bond yields can provide valuation support,” he said.

Singapore ranks second in Asia with regard to the number of coworking centres, placing only behind Tokyo.

Source: CommercialGuru, 7 October 2019