(Bloomberg) -- Concerns about WeWork Cos. may amplify the negative impact of a weakening economy on Singapore's commercial real estate investment trusts, according to Credit Suisse Group AG.
Poor sentiment on the company could further damp demand for co-working spaces amid slowing gross domestic product growth, hurting office REITs, analysts led by Nicholas Teh wrote in a report.
“Office REITs have mentioned in recent briefings that corporate demand has slowed, while the narrow drivers are tech and co-working,” the analysts wrote. “There are growing market concerns around the sustainability of co-working demand, going forward.”
WeWork this week withdrew its planned initial public offering amid difficulties with its fundraising. The company has also been rattled by the departure of its chief executive officer and market concerns over demand.
The New York-based firm is the leading player among flexible work space operators in Singapore, which has seen such facilities triple since 2015, Credit Suisse said, citing Colliers research. Together with other major players such as IWG PLC and JustGroup Holdings Pte., WeWork has contributed to co-working space being a key demand-driver for REITs in the city-state.
CapitaLand Commercial Trust currently has the highest exposure to co-working spaces, amounting to about 7% of its portfolio. A company spokesperson said that there have been no changes to a binding seven-year lease agreement with WeWork for a central business district property, commencing in the second quarter of 2021.
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Credit Suisse noted that the impact may vary depending on the client. While WeWork's losses have mounted, JustGroup's financials show the company is closer to profitability and IWG has already broken even, the analysts noted.
“We note that profitability across operators can vary substantially and, for now, believe concerns would be about the sustainability of WeWork's leases, rather than significant consolidation in the industry as a whole,” the report said.
--With assistance from Chanyaporn Chanjaroen.
To contact the reporters on this story: Ishika Mookerjee in Singapore at imookerjee@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net
To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Kurt Schussler, Naoto Hosoda
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