24 November 2020

The rise of the third space: post-pandemic, flexibility is key to the future of real estate


Joel Shen
Special Counsel | Singapore

COVID-19 has proven to be the catalyst to accelerate profound change in the way we live our lives and use our buildings. The world over, the real estate industry is wrestling with the challenge of catering for new demands, navigating extraordinary opportunities for the more innovative and agile investors and developers.

Flexibility will be at the heart of the development of all types of property and a single-use district will not be sustainable. This applies to the Central Business District just as much as it does to the suburbs. Both shall need to reinvent themselves.

A paradigm shift in the use of office space

The office work paradigm was shifting even before the pandemic, motivated by factors such as environmental sustainability, workforce efficiency and reducing operational costs. The days of whole buildings being occupied by a single tenant for a single purpose – in this case for use as offices – they say are over. This development will have a significant effect on areas like Central Business Districts (‘CBDs’) where buildings tend to focus on a single purpose (e.g. workspace) and other purposes are peripheral to that purpose.

The evidence is mounting:

  • Morgan Stanley predicts that office tenants across Asia will permanently give up between 3-9 percent of their existing office space.
  • The investment bank reported that office landlords across Asia Pacific are increasingly incorporating flexible space within their buildings.
  • In Brisbane, urban designers are now redesigning parts of the CBD, to reduce the concentration of workplaces in the CBD – something which designers had spent decades trying to do before the global pandemic.

In a recent example, Hong Kong’s biggest developer by market value, Sun Hung Kai Properties is looking to change the design for Hong Kong’s largest commercial site in West Kowloon. Its plans include:

  • Reducing the office component by around 9 percent
  • Boosting the retail area by around 90 percent to over 600,000 square feet
  • Adding in more open space geared towards community and the environment – a new 38,000 square foot community plaza and a 1.5 kilometre-long green trail.

The changes are to be more in line with the current market needs, said the blue-chip developer in a recent news report.

Homes, Suburbia and the rise of the “Third Space”

Homes are taking on a new level of importance. Our homes have become our offices, our children’s schools as well as our families’ places of shelter. This will change the homes we want to live in and build, as well as loosening constraints on where we will choose to live.

People will expect their homes to deliver much more because they will no longer serve a purely domestic purpose – they will become places that fulfil home, workplace and social needs.

With the need to have a boundary between home and work spaces, and the office becoming just one of the options to work from, a “third space” has emerged that the hospitality industry may be best placed to fulfil . The third space is outside of the home and office where people can work but also socialise (and perhaps exercise).

Hotel groups have been quick to spot that need. In the West, the Hyatt group has rolled out its “Work from Hyatt” packages at more than two dozen properties across the U.S., Mexico and the Caribbean.

In Asia Pacific, several big hotel groups have also rolled out Work From Home packages for their hotel rooms, including Sofitel Singapore City Centre, Fullerton Hotels and Furama Hotel Group. These luxury and business hotels are marketing their spaces as both flexible working spaces and areas for accompanying family and children such as on-site gyms, conference venues, swimming pools and lounges.

Most of these hotels offer two main options – packages for day-use of rooms and packages for shared work spaces such as lounges or meeting rooms. The former can set you back from $106 to $280 for a duration of 12 hours. The latter option is a more economical option at $19.20 to $150 for a duration of 12 hours, with some hotels even offering monthly passes. These have proven to be popular with locals, with Furama Hotel raising the prices of its “work-from-hotel” passes within two months of its introduction. These packages can include complimentary refreshments, parking, printing and even usage of the gym.

Understanding social behaviours: rethinking the role of the city

Socialising is the second biggest reason for city living. Understanding this holds the key to appreciating why this period of change is potentially so fundamental and what the role of the city will be. If investors start turning away from the city, they could well invest more in residential areas.

As people spend less time in their traditional workplaces and more time remote working, they will also socialise nearer to home. As such, semi-social spaces such as bars, cafes, restaurants and hotels offer potential to replace the social network that was previously built around the office.

Despite the F&B industry being among the hardest-hit in this pandemic, operators don’t believe that socialising is going away because of COVID-19. Some frame their position as a gamble, but ultimately believe that people will always crave social interaction. The question is, what will socialising look and feel like in the next few years?

The variables are dizzying, but we can expect to see our communities transform as some areas benefit from their location and amenities and others face decline, possibly followed by reinvention. A radical change in thinking like this will open up the regions around cities and further afield, and will provide opportunities for developers, particularly those focused on sustainability and the environment, in the creation of new communities.

This article was first published by Singapore Global Network here on 11 Nov 2020.

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Joel Shen Special Counsel, Withers KhattarWong* | Singapore

Category: Article