Partnerships between landlords, flexible office providers will kill off traditional lease business model, says Singaporean co-working space operator TWP

‘The days of independent co-working companies taking tonnes and tonnes of leases are basically over,’ says founder of The Work Project
TWP has secured the backing of Dexus, an Australian real estate company that has an office portfolio of 17.2 million square feet there

International Property

Cheryl Arcibal

Published: 9:30am, 5 Feb 2024

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More office landlords and flexible work space operators are likely to form partnerships that will do away with the traditional lease business that has been “catastrophic” for the industry, according to the founder of The Work Project, a Singapore-based co-working space provider backed by CapitaLand Development.

TWP, which has one location in Hong Kong, has secured the backing of Dexus, an Australian real estate company that has an office portfolio of 17.2 million square feet there, and is aiming to be the country’s largest co-working office operator, said Junny Lee, its founder and CEO.

“I believe the days of independent co-working companies taking tonnes and tonnes of leases are basically over, those days are gone,” said Lee.

“Instead, we envision a future in which landlords and operators both have skin in the game. And, you know, one might ask why should landlords even think about having skin in the game? Why wouldn’t they just want to continue leasing to co- working operators? Well, first of all that business model just hasn’t worked and it’s led to mass failure of many co-working companies.

“But secondly, and more importantly, the reason why landlords need to have skin in the co-working game is because now more than ever, landlords need to be ready for hybrid work.”

Junny Lee, founder and CEO of Singapore-based The Work Project. Photo: SCMP Handout

In November, New York-headquartered WeWork filed for bankruptcy protection in the US, seeking to shield assets as it struggled to make a profit and renegotiate expensive leases it had taken on. Once the most recognisable co-working company in the world, the start-up has become a cautionary tale about the rapid and risky expansion in the segment in the early days.

Lee said the partnership with CapitaLand, a property investment and management company headquartered in Singapore, had helped TWP to grow its portfolio from two – one in Singapore and one in Hong Kong – to 12 including some in Sydney.

CapitaLand, whose largest shareholder is Singapore’s sovereign wealth fund, Temasek Holdings, made an initial investment in the co-working company in 2018 and now owns 85 per cent of TWP. In Australia, the partnership will see Dexus and TWP owning 50 per cent each, Lee said.

The joint venture with Dexus will allow TWP to manage five new sites in Australia under the Dexus Place brand and expand its locations to Melbourne, Perth and Brisbane.

“What we’ve seen was that the CapitaLand partnership has really propelled our growth in a way that is hard to see there being a comparable experience in our industry,” Lee said.

“We operate in almost every CapitaLand building. And what we’re about to experience with this Dexus deal, I believe, is something very similar.

“This new partnership I think is going to make us into the largest operator in Australia in the next five to six years. That mirrors our experience in Singapore that we’ve had with CapitaLand for the past couple of years.”

Lee forecasts that TWP will operate some 550,000 square feet of flexible office space in Australia in five years’ time.

The Australian office property segment in central business districts saw vacancy rates creep up to 14.9 per cent in the last quarter of 2023 from 14.2 per cent a year ago, according to JLL. Meanwhile growth of rents slowed to 1.4 per cent from 2.5 per cent in the same period.

“Flexible office space is quickly becoming a must-have for commercial landlords looking to differentiate their assets and provide flexibility for tenants,” said Tim O’Connor, JLL’s head of office leasing for Australia.

“With demand for top-tier office stock on the rise, landlords are investing in amenities and exploring ways to elevate their assets,” O’Connor said.

“Partnering with white-label flex operators has been a strategic way for landlords to provide flexibility and infuse hospitality-focused and lifestyle-driven services into their buildings.

“While traditional co-working businesses will still exist, we expect the landlord-owned flex sector to continue to grow and evolve, providing more tenant-focused solutions that make assets more attractive and safeguard their value.”