Arcc Spaces navigates co-working’s uncharted future

“Globally, Covid-19 has been terrible for our industry because in a way we have the same weaknesses as the hospitality sector, like hotels. We rely on welcoming strangers into one space which we operate and are liable for,” says Matthew Chisholm, COO of flexible workspace operator Arcc Spaces.

Besides providing flexible workspaces, the co-working industry is also touted as a platform that breeds community, linking companies with one another and giving them a platform to forge work partnerships naturally. But in a socially distanced world, physical interactions have to be limited. Large-scale webinars have become a platform to facilitate discussions and business relationships, although they are unlikely to ever match up to face-to-face networking.

Navigating choppy waters

Arcc Spaces’ latest offering at One Marina Boulevard — spanning 19,000 sq ft on the 20th floor — opened its doors officially to members on Aug 1, and is today 30% committed. To attract workers, prices have been slashed by half, and employees can now get to work in the space for $650 per month. For access to all four of its centres in Singapore — One Marina Boulevard, 75 High Street, Suntec, and 99 Duxton — a full-month pass costs $500 a month.

The new space was launched against a backdrop of weak office demand, impacted by the pandemic-led recession and exacerbated by the trend of staff working from home. The launch was initially planned for April, but had been delayed due to the unpredictability caused by the pandemic.

As a reflection of soft office demand, Grade-A office monthly rents in Singapore’s CBD fell by 5.1% q-o-q to $9.84 psf in 3Q. Real estate consultancy Cushman & Wakefield (C&W) projects that Singapore’s office leasing market is likely to weather a 10% fall for the full-year 2020, with a further decline in 2021. Ultimately, it says, the leasing market will begin to improve in 2022, but reach its full recovery only two to three years later.

As uncertainty looms, Chisholm has observed some changes in consumer behaviour. While 50% of demand for its work spaces predominantly used to come from businesses, Arcc Spaces now finds itself dealing with individual interest from companies, which he describes as “B2B2C”.

He explains: “In the past, company X would have been 50 people, and John Tan was only one of them. I didn’t care about John Tan, I just wanted to do a deal with company X — that was a B2B deal… [But] now, those 50 people are all working from home. So company X may say: ‘No, we don’t need 50 people. But John Tan runs the collaborative team that does creative design, and creative design needs to get together and collaborate’.”

In essence, Arcc Spaces, which used to ink deals with companies accommodating their full team size, now finds itself catering to the respective needs of smaller teams within these firms.

“It’s become a different kind of conversation, where the company can’t accommodate everyone, so they then break it down and say: ‘Which groups or teams are most susceptible to disruption, that is really impacting their productivity as a result of Covid-19 and working from home?’” says Chisholm.

To that end, he believes that those most impacted by working remotely are teams that need to communicate visually, or huddle and brainstorm on a problem in real time. Creative solutions often emerge as a result of fluid conversations, which are unlikely to happen over conference calls with fixed agendas.

Without doubt, the choppy waters of the future are still hard to navigate. “I think what’s important to note here is that the companies [still] don’t know how to tackle the work-from-home versus office situation — they’re coming to us to talk about it,” says Chisholm. “We are saying, okay, let us know which of the people in your teams are most vulnerable to the disruption. And let’s put a package together just for you. In the meantime, you can collect some data. You can then use that data to inform what your next steps in the strategy might be.”

To tap the remote working demand, the firm has partnered Ecopex Furniture to roll out a furniture package comprising the full suite of work-from-home necessities — a height-adjustable desk, HAG Capisco ergonomic chair, laptop rack, and a video conferencing speaker. Customers who commit to a minimum of three months with the firm can get the full set delivered to their doorstep for $700 a month. Arcc Spaces says that so far, 30 such memberships have been committed. The retail price for the set is $2,000.

The tides have changed

As more companies operate remotely, traditional office landlords will lose out in the near horizon as net demand for fixed leases fall. The edge it had over flexible workspace operators — of locking in a longer lease for a larger space at a cheaper rate — is now put to test in a situation where half of office spaces are left vacant.

From Sept 28, it has been mandated that more employees in Singapore can return to the office, on the condition that only half of all workers are in the office at any one time, and staff are only back for half of their total working hours.

For smaller firms, at least, flexible offices have become a more attractive alternative. For one, the option to scale up or down their office size and vary the length of lease based on prevailing business conditions will be feasible, as compared to a fixed contract.

Secondly, a tenant who chooses to commit to a co-working space for a short period of time will be able to channel funds into the parts of the business that can potentially generate revenue, instead of having the funds tied up by overhead costs.

That would also save businesses the hassle that comes with fitting out an office space. In a traditional office solution, this may include fitting out not just workstations, but also the pantry, meeting rooms and reception.

In an uncertain future, the demand for more flexibility will necessitate a higher level customisation of standalone office spaces. This is especially so for large MNCs that have the financial runway to outsource such decisions to dedicated firms, and are not keen on sharing an office space with other companies, says Chisholm. “They look at real estate and say, ‘Well, how do I outsource the real estate to professionals who have subject matter expertise in finding the space, negotiating the deal, handling documentation, decision, and fit-out?’”

Economies of scale would be needed for such a model — what Chisholm calls a “managed space solution” — to work. “You’d never do a managed space solution, for a 10-pax team. It has got to be a team of, say, a hundred,” he says.

Different firms would also require distinct specifications across configuration, tech, furnishings and security. For instance, trading companies would need high-speed connectivity infrastructure and battery backups in case a power outage happens, an event that could result in billions of dollars lost. Design firms, in comparison, will require more collaborative breakout spaces, and are typically more particular than other businesses about the furnishings, layout, and interior design of their office.

Likely, what is going to happen is that “the smaller tenants will move into a flexible workplace. And the medium-sized tenants will start looking at managed space options. Everyone’s doing it just to make sure that their risk is mitigated and they have flexibility to move or downsize or upsize accordingly, because they have very little visibility over what the size of their teams will be in six to 12 months”, Chisholm says.

At the moment, Arcc Spaces is offering a managed space option to a number of large firms in Beijing and Kuala Lumpur. One of them is a Chinese tech juggernaut in its Beijing space that the firm wishes to keep unnamed, occupying 42,000 sq ft of floor plate — that is twice the size of its space in One Marina Boulevard.

The transition of clients taking up dedicated floor plates has happened naturally. “We have had existing clients that outgrew their space, and then asked for a larger space, managed by us,” he says.
These clientele are Arcc Spaces’ long-term customers, which Chisholm reveals are also the ones “who pay us the highest rentals”. In Singapore, Arcc Spaces’ relationship with some of its long-term clients dates back a decade.

The firm is keen on keeping its customers happy, as research has shown that acquiring a new customer can cost five to 25 times more than retaining an existing one, and increasing customer retention rates by 5% grows profits by 25% to 95%. Measures include keeping tabs on the ratio of staff to customers so that needs can be taken care of. “If you’re a member, then almost all of our staff will know you on a first name basis. They will know how you like your coffee. They will know when your birthday is,” he says. In fact, all of Arcc Spaces’ staff have been trained in hospitality, and most of them have worked at hotels previously.

Much like at a hotel reception, the writer of this article was greeted by a front-of-house staff at its One Marina Boulevard space, and handed a hot towel.