KUALA LUMPUR (March 22): Hong Leong Investment Bank said today the growth in co-working space bodes well for real estate investment trusts (REITs), malls and property developers due to greater footfalls and secured tenancies.

Hong Leong analysts Jeremy Goh, Andrew Lim and Farah Diyana Kamaludin wrote in a note today there is a potential symbiotic relationship between REITs and co-working space operators. Hong Leong said operators get discounted rent while REITS enjoy take-up certainty and new exposure to the smaller tenant segment.

"On one hand co-working space competes against traditional office REITs but on the other hand, they are a potential tenant. Herein lies potential for a symbiotic relationship to exist. As co-working operators usually lease a large chunk of space, REITs may be compelled to offer a discounted rate. In return, REITs will benefit from take-up rate certainty by signing on 1 large tenant vs multiple fragmented ones.

"Furthermore, we believe co-working (space) operators can cast a wider net to capture a larger tenant base. The membership base of co-working space is pretty diverse ranging from MNCs (multinational corporations) to small start-ups and freelancers. By leasing its space to co-working (space) operators, this indirectly allows REITs to capture the smaller tenant segment which was previously not within reach," the analysts said.

The emergence of co-working space has also been positive for neighbourhood malls in terms of occupancy and footfall, they said, citing the Malaysia Shopping Malls Association's view.

The analysts said there is co-working space in neighbourhood malls including Citta Mall and Jaya One in the Klang Valley.

On property developers, the analysts said given the current office oversupply situation in the Klang Valley, the growing popularity of co-working space presents an opportunity for property developers to lease their unsold office inventory as a temporary solution to earn rental income as opposed to leaving them idle.

They said for developers with investment properties, a symbiotic relationship can happen with co-working spaces, similar to Hong Leong's argument for REITs.

"Still, these contributions will only play out meaningfully in the longer term when the co-working industry matures. Within our coverage, most developers are exposed to residential rather than commercial," they said.