According to a research paper by Edmund Tie & Company, it is now estimated that by end of this year 2018, the total amount of co-working or flexible work spaces will hit around 1.4m sqft in Singapore, with a big part of this concentrated in the business district or CBD.  And as at May this year, there are approximately 110 serviced office cum co-working operators jostling for bigger shares in the Singapore office market. This comprises of both big brandname operators familiar to most from Justco (local), The Great Room (local), WeWork (USA), Campfire (Hongkong) to a whole plethora of local mid-sized operators making their presence felt here and in Asia.  What ensues is inadvertently a price war which can only be good news for those looking to rent.

In this article we will discuss the differences between renting a traditional office in Singapore versus that of taking up a private room in a service office, or that of a coworking space.  We will also discuss what we believe is the emergence of another hybrid office space category in what we call “co-location” office as Singapore landlords of traditional offices struggle to fill spaces in the face of this tsunami shift to flexible spaces over the next decade.

Table of Contents

1. Serviced Office Vs Traditional Office Rental In Singapore
1.1 What is traditional office rental?
1.2 What is the concept of serviced office?
1.3 Comparison between serviced office and traditional office
1.4 Cost differentials between serviced office and traditional office
2. Different Types Of Serviced Office Offerings In Singapore
2.1 Building type
2.2 Brand-name vs small operators
2.3 Comparison between serviced office and coworking space
3. Serviced Office Vs Co-location Office
3.1 What is co-location office?
3.2 Comparison between serviced office and co-location office
3.3 Cost differentials between serviced office and co-location office
4. Summary

1. SERVICE OFFICE VS TRADITIONAL OFFICE RENTAL

1.1 What is traditional office rental?

Before this millennial workforce came about, most tenants be it SME or big corporates would lease a fixed square footage area of office spaces on typical a 3-year tenure for commercial leases.  This often requires careful planning and budgeting with 3-year forecast of all resources needed for business expansion in a specific country or location which is often difficult to do.  Once the space is commited, tenants would need to take over the space and spend on fitting out or renovation before moving in quickly and they need to see out the duration of the lease no matter what happens to the business environment.

1.2 What is the concept of serviced office?

Serviced office, on the other hand, requires much lower commitment both in terms of the duration of the lease as well as the costs required to fit out and even to maintain the business operations.  As the name implies, the office premise would be “serviced” by an experienced flexible space operator well adept to provide all kinds of business services needed from high-speed wifi, cleaning & washing, pantry supplies, printing solutions, office manager with a team of reception staff providing concierge services like phone answering, etc.

In fact, serviced office has been around for the longest time with very established players like Regus and ServCorp who used to command premium pricing with 2-pax private room going at above S$2,000 as recent as 2014.  It was only in the last two years when serviced office operators mushroomed in Singapore and the industry grew into a multi-billion dollar business globally as big corporates catch on to the trend of embedding coworking in their culture.

It is not difficult to understand why this is an attractive option not just for new startups and small businesses who may not afford the higher rentals in the CBD, but multi-national companies as well.  With fluid and ever-changing business environment as a result of technological disruptions and political upheavels in recent years, the flexibility of much shorter lease (often as short as 1 to 3 months) and not commiting on renovations and running costs is highly valued.  Enterprises could put in teams or whole departments and scale up or right-size at will, with no concern on lack of seats or over-commiting on a lease when business plans change.

1.3 Comparison between serviced and traditional office

	Serviced Office	Traditional Office
Length of lease	Totally flexible which can start from as little as 1 to 3 months; tenants could also “swop” over to another bigger or smaller room, or add on rooms as business progresses	Commercial lease usually at minimum of 2 to 3 years with handover of a fixed committed space
Fitting out & re-instatement costs at end	Minimal as all renovations are done with offie tables, chairs, phone lines and wifi/lan cable point all provided.  There is usually just a basic reinstatement fee at end of the lease which is in the range of $300-500.	Can range from $20,000 (with partition for managers’ rooms) for 500 sqft small offices to over $100,000 for large spaces. It is an often-overlooked cost item which can easily add 30-50% to rentals when amortized over duration of the lease, especially for shorter lease of 2 years.
Ambience and décor	Most operators provide a swanky reception area for guests and big spacious “breakout” and coworking areas which boasts of modern contemporary “living room” décor.  Some may even come with seaview!Private office rooms usually come with window (for the bigger ones) and glass fittings to allow for natural light.	Most traditional offices are fitted out with simple carpet flooring and individual workstations on colored-panel system furnitures unlike the “open concept” in most serviced offices.Private rooms are usually whole-glass partitions with old wooden furnitures and wall cabinets.
Monthly running costs	Most basic running costs are covered like internet access, electricity power and pantry supplies. However, most serviced office operators would charge for usage costs from phone lines, printing, to meeting room.	All services need to be applied and contracted for specific periods from business broadband, printing, pantry supplies, etc.
Office Management	All tenants big and small can leave all office management matters to dedicated team of “centre managers”	Depending on the size of tenants’ operations, they will need to have person dedicated or oversee all office management issues from suppliers’ contract, fixing repairs of lights or IT infrastructure, VHR (video camera), M&E issues, etc
Networking and collaboration	Serviced office tenants could easily mingle in common areas and collaborate when opportunities arise. This process is precipitated by the many networking activities and regular talks organized by the operators who would invite tenants or outside experts to give talks on business topics of interest.	Most of the time tenants would keep all interactions within the confines of the company, ie. colleagues and coworkers.  Depending on the size and scale of operations, there would be team-building activities but not on a weekly or monthly basis unlike in service offices where there are resources dedicated to such events.

1.4 Cost differentials between serviced office & traditional office

Based on small unit 400 sqft for 5 pax	Traditional Office	Serviced Office
Fitting Out Costs SCDF approval for fire water sprinkler M&E works (mechanical & electrical) IT infrastructure (Cat 6 lan cabling) Paritition (rockwool sound-proofing) Carpentry work for cabinets/storage Carpet flooring Office furnitures (5 workstations) PABX phone system (setup) VHR system (video camera recorder) Security access system Install own invertor airconTotal fitting-out cost	$3,000 $3,000 $2,000 $6,000 $2,500 $2,000 $2,500 $3,000 $1,000 $3,000 $2,000$30,000	Included in rent Included in rent Included in rent Included in rent Included in rent Included in rent Included in rent Included in rent Included in rent Included in rent Included in rentZero
Re-instatement Costs At end of 2-year lease (estimated)	$10,000	$1,000
Monthly Running Costs Monthly rental to landlord (with GST) Utilities (electricity & water) Business broadband 400mbps Phone usage charges Pantry supplies Cleaning services Repairs & maintenance including aircon service Furniture & equipment depreciation (optional) Hire 1 office receptionistTotal monthly running costs (we will exclude depreciation costs which is paid for under fit-out & hiring of receptionist)	$3,200 $200 $200 $100 $100 $300 $100 ($1,000) ($2,000)$4,200	$4,000 Included in rent Included in rent $100 Included in rent Included in rent Included in rent Included in rent Included in rent$4,100
True Total Monthly Cost (amortized over 2-year period)	$5,866 ($40,000/24mths + $4200)	$4,141 ($1,000/24mths + $4100)

Although serviced office rental for 5 pax at $4,000 (~$3,800+GST) may seem to be higher than the rent of $3,200 paid (~$3,000+GST) to the landlord of a traditional office space of 400 sqft, when amortization costs for renovation and setup costs are factored in, it actually works out to be $1,725 ($5,866 less $4,141) less per month which saves the tenant a whopping $41,400 over the course of a 24-month lease!

And let us not forget management’s time involved to brief contractor, apply for permits, oversee renovation, requisite furnitures & fit-out items, contract for office supplies and services, etc.

2. DIFFERENT TYPES OF SERVICED OFFICE OFFERINGS

2.1 Building type

As most of the serviced office operators are located in CBD area, and there are generally 3 types of office buildings within the CBD.  Take note there is no standard definition for commercial office buildings in Singapore other than the official URA’s definition of Category 1 & 2 office building with 1 being defined as those located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area; and Catesgory 2 being defined as everything else other than 1.  Still the industry uses an average floor plate of around 10,000 sqft as the benchmark.

Premium Grade
Premium-grade office buildings are those located in Singapore’s CBD and with the following attributes:
– Usually newly-erected buildings, not just refurbished
– A grand and high-ceiling lobby reception area with state-of-the-art security access system
– Large floor plates of at least 10,000 sqft with no columns
– High total gross floor area with high occupancy
– Commands the top rental psf rate in Singapore and usually houses global MNCs and banks

Examples of serviced office operators located in premium-grade office buildings include:
One Marina – Justco
Marina Bay Financial Centre (MBFC) – Servcorp, Regus

Grade A
Grade A office buildings form the bulk of high-end office buildings in CBD as many building owners underwent extensive rebuilding or refurbishments in the last few years in Singapore.  These buildings are:
– Newly-erected or refurbished
– State-of-the-art security access system
– Large floor plates of at least 10,000 sqft

Almost all existing new or refurbished office buildings in the CBD fall into this category:
Suntec Tower – WeWork
Capital Tower – Collective Works

Grade B
Grade B office buildings are those older office buildings yet to undergo major extensive refurbishments however those floors occupied by serviced office operators would have been overhauled completely.  To draw an analogy, it is almost like one is walking into a “show room” unit within a block of old HDB flat:
– Older office buildings yet to undergo any or minimal refurbishments usually in the lift lobby area
– May or may not have security access control via entry passes
– Smaller floor plate sizes

Examples of serviced office operators located in grade B office buildings include:
71 Shenton Way – WeWork
139 Cecil St – Campfire

Shopping Malls
Besides office buildings, the trend of coworking operators entering retail malls have started overseas in markets like US and in Singapore local JustGroup started the ball rolling with its new premise this year 2018 opening in Marina Square mall.  The huge floor plate allows it to add on to its offerings by providing product showcase areas for its many new startups.  We expect this trend to further take root in Singapore especially in the upper floors of malls where there is getting harder for mall owners to fill the spaces.

2.2 Brand-name operators vs small operators

We have covered quite a number of top 10 brand names in serviced office and coworking operators by now.  Still, that is just 10-20% out of a total of some estimated 110 operators.  There are many other smaller serviced office and coworking operators and some with only single-location like us here at StartWise.

Smaller operators are unable to match the depth and width of the membership base and networking activities of the big boys.  Nor can we compete on the extensive interior design budget and big spacious floor plates offered by these Tier 1 and some global operators.

However, as in all trades of life, small has its advantages and besides pricing power, we are able to fulfil certain unmet niche in the market place and we will elaborate more in a later section on a new trend we believe will arise over the next few years.  Before we do that, we need to take a closer look at the difference between what is a serviced office and what is a coworking space.

2.3 Comparison between serviced office & coworking space

So far, we have used the term “serviced office” loosely in this article when we really mean “coworking space” at times.  It is important to note that the two terms refer to two different office products but is used interchangedly somewhat by the industry as almost all serviced office operators would also provide coworking solutions and vice versa.

As explained earlier, serviced office as a product has been around for ages and our guess is that is still going to be pretty much the preferred choice for all tenants when budget is not an issue.  Renting a serviced office means taking up a short lease of one or a few private rooms (usually with window) that could sit a few coworkers in each room. There is a sense of ownership of the space with private restricted access, soundproof glass partitions where conversations are conducted exclusively.  Customers or business partners who come down for quick short meetings can be hosted in the company’s exclusive area.

On the other hand, coworking spaces which is also known as hot-desking to some, are more suited for freelancers or those in creative and media industries where collaboration is valued more.  That is not to say that those in such trades will not take up private office rooms.  It depends.  For those who just started out and wish to keep their fixed costs down, coworking memberships where one is free to use any available open seats during business hours for a small fee per month or per day may work best in our opinion.  The only draw back is it is perceived as a less “corporate” or business setting for work and may not be suited for certain industries. Typically, tenants would request to have a fixed dedicated desk zones so as to enclose the whole team within the same area.

Media has propagated the term “coworking space operators” not only because it ties in with the whole concept of the sharing economy and the rising army of freelancing millennials which is all the buzz now; but it gives a sexy appeal to the whole idea of an office.  Still from evidence we see on the ground, serviced office continues to form the main bulk of businesses for most of these operators especially in the enterprise segment.  Perhaps a better word to describe both office space solution providers in the same breadth would be – flexible space operators, which would encapsulate both serviced office and coworking space rental.

3. SERVICED OFFICE VS CO-LOCATION OFFICE

3.1 What is co-location office?

With serviced office operators taking over commercial buildings in Singapore and with this growth rate projected to rise annually in double-digits 20-30%, traditional office landlords be it building owners or strata-office owners would find it more and more difficult to fill their spaces as millennials and even enterprise tenants take to such flexible spaces.  The demand for traditional offices has shrunk and will continue to be so.

Fortunately, we do see an unmet niche for traditional office owners who could lease out their premises as co-location office rental through management contracts with co-location office operators.  So, just what exactly is co-location office?

There are many smaller tenants or startups who may like the idea of renting a serviced office with prime business address in CBD but is sensitive to the steep pricing charged by major operators which range from $1,000 to $1,600 for a 2-pax private room.  They might like the idea of a hybrid concept between a small traditional office without all the “frills” of coworking bells and whistles, yet still enjoy the flexibility of a serviced office short-term lease rental with all basic business services provided.  Think of it like a budget airline without all the frills of a full-serviced carrier, but still get you from point to point safely and efficiently.

As the name implies, co-locating offices refers to the setup where the entire small office space is essentially occupied by just a few tenants (like 5 to 8) in non-conflicting businesses who decide to co-locate their operations and share out common resources.  There will be an operator who takes care of the basic services like mails, calls, internet access, small pantry supplies, cleaning etc.  Yes, there may not be that swanky reception area with free coffee and tea but if it helps to bring down overall rental costs by some 25-30% per month, that makes perfect sense for tenants who rather spend the money on marketing to get more new businesses.

For example, in the cost comparison given earlier in section 1.4, co-locating offices into 2 private rooms for 5 persons will cost only $3,000 all-in inclusive of gst at StartWise, which is at 27% lower cost from $4,100 monthly running costs.   And if your company needs only a 2-pax room with window, this all-inclusive cost is at just $1,360 per month and takes care of all your daily business needs from printing, meeting to phone usage.

3.2 Comparison between serviced office & co-location office

	Co-location Office	Serviced Office
Length of lease	Totally flexible, but subject to availability of rooms and desks due to the smaller scale	Totally flexible
Fitting out & re-instatement costs at end	No fit-out costs. Only re-instatement fee as low as $100 per pax	No fit-out costs.  Only re-instatement fee usually $300-$500 per room
Branding & ambience	Simple reception area with no spacious feel but can come with modern contemporary look.With few tenants co-sharing the common space, corporate branding is much stronger with logo signages at entrance for guests. Tenants could also portay themselves as related or affiliate companies aligning for the same vision or purpose.	Big swanky reception with modern contemporary look and feel.  Spacious coworking space.Due to the size of operations, it will be difficult not to be seen as one of the many tenants in a coworking setup. Corporate logo displays are chargeable by month and get overpowered by the distinctive brand of the service office itself.
Monthly running costs	Depends. Operators could charge by usage of meeting rooms, printing, etc. but most would include all services in the rent so as to differentiate from service office.Smaller operators typically has no GST, or choose to absorb it as part of the all-inclusive rent.	Most do charge by usage with the exception of a few players.  Charges will be levied for meeting room bookings (hourly rate), printing, displaying of logo, snacks and premium coffee like nespresso.  Some would even decouple business address as a service from basic rent and levy a fee for that.Rental price listed normally excludes GST.
Office Management	Usually small operators can only provide a single receptionist to take care of all day-to-day office admin matters.	All tenants big and small can leave all office management matters to dedicated team of “centre managers”.
Networking and collaboration	No regular hosting of events and talks.	Regular talks and events from business seminars, workshops, after office hour parties to even yoga and dancing classes.

3.3 Cost differentials between serviced office and co-location office

The main cost differentials between serviced office and co-location office, other than the lower rent, is in the pricing for services by use.  As most co-location office operators are small setups with less than 10 tenants, it does not make economic sense to track and charge by use.  As highlighted, it makes more strategic sense to include all usage costs into the rent itself, be it phone calls to meeting room bookings.  It will difficult to breakdown and provide itemized charges to individual tenants, albeit there are solutions or platforms in the market that allows for it.

The other obvious cost advantage for co-location office over serviced office comes in the form of lower rent charged.  This is possible as co-location office operators keep all running costs down to the bare minimal by doing away with all the frills like free coffee and tea. They also do not need to breakeven on high fixed rental costs as there is no necessity to provide that spacious look and feel which means every sqft in the lettable space will be optimized. It will not take too long for them to fill the limited no. of rooms and seats.

4. OVERALL SUMMARY

In this article we have introduced you to the various types of flexible work spaces from serviced office, coworking or hotdesking, to co-location offices. The last of which is what we anticipate as a new hybrid category of office space that provides flexible solutions yet giving a stronger business identity and corporate look and feel. It would also target at the more budget-conscious segment of tenants out there with rents set at average of 25-30% lower than those of serviced offices.

We have also provided realistic cost breakdowns to estimate the potential savings a small business tenant with less than five staff would reap if it opts for flexible office space (serviced office or co-location office) over that of a traditional office rental.  And this figure can be quite staggering over a period of 2-year lease.

We hope the information provided here will be of great relevance to your search process.  As this article is essentially an opinion-piece from an existing co-location office operator, we ask you to validate the figures and statements presented though every effort has been taken by us to ensure its accuracy and objectivity.  Please also do read our disclaimer clauses at the end of the article.

Speak to us today to find out more and to arrange for an obligation-free viewing of premises.  We look forward to welcoming you to the StartWise family.

Disclaimer
Though every effort has been made to ensure the accuracy of our writing and analysis, we do not warrant that our research findings will be 100% true and unbiased as we are also in the business of operating a co-location office in Singapore ourselves.  We stand corrected and welcome any such feedback to info@startwise.sg  Through our blog, we aim to summarize useful information on office rental market in Singapore and to bring you coverage on interesting developments in the industry.  We also express our opinions in our writing which must not be taken as facts without validation or further checks.  Our sources of information will be limied to those from the authorities, and whatever that is published in the public domain as well as insights gathered from our day-to-day marketing and operations in our business.  You should not base any decision on any representations given in any of our blog articles without fully verifying the said information with the relevant parties concerned and we cannot be made liable for any losses suffered as a result.