Co-working spaces and flexible leases – the future of commercial property?

Co-working spaces have been making waves in the commercial property sector in recent years, and the pace of development and expansion only seems to be picking up.

Landlords who have been used to the traditional leasing structure may now be leaning towards offering more flexibility to fight the competition from these co-working spaces.

Co-working companies making up almost half of prime-grade office spaces

About 45% of the prime-grade office spaces net absorption last year was made up of flexible working spaces and this year, the market is expected to expand by 50% from a 1.4 million sq ft market size to more than 2 million sq ft. Some of the largest co-working companies such as WeWork and JustCo each have spaces in at least 10 locations in Singapore.

To combat this fierce competition, landlords may have to tailor their offerings more creatively in order to increase the uptake of commercial spaces.

Guoco Midtown. Picture: GuocoLand Group

GuocoLand, for example, is pulling out all the stops to attract tenants at their latest mixed-use development, Guoco Midtown which is slated for completion in 2022. They are taking an active step to offer tenants flexible leasing options.

In a climate where tenants are usually locked into their leases for 5-year periods, 15% of the net lettable office spaces have been set aside for tenants who are after lease flexibility.

Developer GuocoLand is hoping that this will help companies plan for expansion or be able to structure contractual teams without the hassle of relocation.

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Supply of office spaces expected match demand till 2022

OUE Downtown. Picture: iProperty

Analysts are expecting the growth of flexible working spaces to continue well into the decade as it allows tenants to better align their companies’ growth according to market cycles.

More developers may join the bandwagon and offer flexible leasing terms, which would benefit tenants who will no longer have to battle the high overhead costs of relocation.

These new flexible leases may, however, mean competition for co-working firms and there may also be more vacancies within a development should there be no demand for such spaces.

Landlords are however free to set their tolerance limits for flexible leases and could adjust their leasing structure to market situations accordingly.

One possibility is to offer core spaces at lower costs and a premium for flexibility.

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