Forget WeWork’s woes, SE Asia’s co-working space operators are expanding

Photo by Shridhar Gupta on Unsplash

SoftBank-backed co-working space provider WeWork’s botched IPO and valuation nosedive last year sent ripples through the startup and investment ecosystems across the world. Its peers in Southeast Asia, however, claim to have emerged largely unscathed with big expansion plans for this year.

According to global real estate services firm JLL, the flexible office space market in Southeast Asia has seen substantial growth as businesses scout for economical solutions to their real estate needs and landlords look for ways to boost demand.

“We continue to receive enquiries from corporates looking to incorporate flexible space in their real estate portfolios and we see further room for growth of this segment of flex operators’ business,” said Chris Clausen, Director, Asia Pacific Research and Consultancy, JLL.

He pointed out that office market penetration in cities such as Manila and Kuala Lumpur lags peers in Southeast Asia and across the wider Asia region, indicating room for further growth. This opportunity has prompted several new co-working space operators to crop up in Southeast Asia over the last couple of years.

SEA flexible space stock and operators on the rise

Based on major active flexible space operators in Bangkok, Ho Chi Minh, Hanoi, Kuala Lumpur, Manila and Singapore. Source: JLL Research

Meanwhile, the largest home-grown flexible space operators in the region, including Singapore’s JustCo, Indonesia’s CoHive, Vietnam’s UPGen and Malaysia’s Common Ground, told DealStreetAsia they plan to continue expanding this year.

JustCo, which has expanded its network from 14 co-working centres in two cities to close to 42 centres across eight cities today, aims to operate more than 3 million square feet of co-working spaces by 2021. It recently tied up with Japanese construction and real estate firm Daito Trust Construction to build and operate flexible workspaces in Japan, starting with seven to nine centres in Tokyo in the next two years.

Common Ground, which currently has 23 locations across Malaysia, Philippines and Thailand, plans to increase its space stock to 670,000 square feet this year from 372,000 currently.

Vietnam’s UPGen, which operates in 21 locations across Vietnam, Malaysia and Thailand, also has plans to roll out another 50,000 square metres of smart office space in its home market this year. The Northstar Group-backed firm has also identified potential opportunities in markets such as Jakarta, Manila and Myanmar.

CoHive, the largest coworking operator in Indonesia with 37 locations, targets to increase its space to 100,000 square metres by the end of this year, from 75,000 square metres currently. It plans to continue focusing on Indonesia, especially in the second-tier cities of Bandung and Makassar.

SEA operators in expansion mode

Source: Company management. *JustCo’s estimates are for 2021. 

Consolidation ahead?

Amid all the talks of expansion, oversupply and intense competition continue to dog the market. The WeWork fiasco may have only made things worse.

“Key players who expanded aggressively couldn’t scale back because that would have left a bad impression on investors and affected their funding. So they lowered their desk prices even further to get new members and prop up their revenues. This has dragged down the whole sector,” said the founder of a Malaysia-based co-working space provider.

It may take time for the market to digest the volume of supply that has come online in the last few months, says JLL’s Clausen. “Competition is intensifying and we may see some centre closures and operators fall short of profitability targets.”

One operator admitted to having already faced challenges in fundraising as the growth-at-all-costs model fell out of favour with investors. “The sector had a great party in the past five years. But when WeWork went wrong, the party was over,” the executive added, on the condition of anonymity.

JustCo, which is backed by Singapore’s sovereign wealth fund GIC and real estate company Frasers Property, was said to have set an ambitious Series D funding target of $500 million last year. It had in November last year secured a $74 million investment from Daito Trust Construction. The company declined to provide an update on its fundraising exercise.

“Besides funding, partnerships with multi-national conglomerates have paved the way for JustCo to take on new leases and secure co-working spaces within iconic buildings in prime locations,” said its chief executive officer Kong Wan Sing.

CoHive secured Series B funding of $13.8 million led by Stonebridge Ventures last June and was said to be targeting a total of $20 million last year, as was Central Group-backed Common Ground, which had last raised $18 million.

“All locations that have opened in the past half-year have been immediately profitable in the first month of operations. All our existing investors are committed to our vision,” said CoHive co-founder and chief executive Jason Lee.

Expand Table

Co-working space operators' funding progress

JustCo$177 million joint investment by GIC and Frasers Property in May 2018
$74 million from Japanese real estate firm Daito Trust Construction in Nov 2019
CoHive$20 million Series A from SoftBank Ventures, H&CK Partners, Tigris Investment, Naver, LINE Ventures and STIC Investments in June 2018
$13.5 million Series B led by Stonebridge Ventures in June 2019
Common Ground$20 million Series A from Central Group, FarEast, Taylors Education, Selangor Properties in June 2018
$18 million in Series B so far from existing investors; expects to close round in Feb

As for UPGen, its co-founder Nam Do revealed that the management is in talks with investors to raise funding. However, he emphasised that the group does not need to rely on venture capital and private equity investors.

“We are profitable after three years of operations. We recognised from early on that in order to be financially sustainable, we needed a different model. We’re able to access bank financing and debt financing as well,” said Do.

Path to profitability

Based on data obtained by DealStreetAsia from Malaysia and Singapore’s regulators, JustCo recorded profit before tax in 2018.

Source: Accounting and Corporate Regulatory Authority (ACRA), Singapore

Separately, Common Ground’s co-founder Erman Akinci had indicated in an earlier interview that the firm achieved breakeven last year and is expected to become profitable this year.

However, both companies registered significant “other income” in their financial statements in 2018. JustCo recorded close to 148-fold jump in other income at S$25.41 million in 2018, compared with S$172,022 a year earlier.

Common Ground also saw its other income surge close to 10 times to 6.31 million ringgit in 2018, from merely 657,199 ringgit in the previous year.

“Our healthy year-on-year growth and expansion of new centres has been largely driven by the continued demand of both multi-national and local clients who value the benefits of co-working,” said JustCo’s Kong. He declined to comment on the spike in other income.

Common Ground, too, declined to comment on the specifics.

Source: Companies Commission of Malaysia

Co-working space providers may still find it tough to raise money this year as investors continue to remain sceptical about the market.

“My problem with co-working space is about the rental arbitrage game. What value position do they have? I don’t think we need so many co-working spaces. It is just too much competition and too little specialty,” said Rachel Lau, founding partner at private investment firm RHL Ventures.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.