With work from home remaining as a default, office space is under-utilised resulting to firms conducting “workplace strategy studies to determine their future office needs”. This is expected to impact the leasing demand in the next 12-18 months.
While the circuit breaker period eased into Phase 2 by the middle of June, leasing activity for Singapore’s Grade A offices came to a halt during the third quarter of 2020, with the pace of occupiers snapping up space within the Grade A Central Business District (CBD) area remaining sluggish, revealed Cushman & Wakefield.
It noted that tenants with immediate leases expiring are seeking short term renewals given the uncertain business environment. And with work from home remaining as a default, office space is under-utilised resulting to firms conducting “workplace strategy studies to determine their future office needs”.
“In the immediate to short term, the market is expecting a fraction of space to be returned vacant when occupiers renew their leases,” said Cushman & Wakefield.
Nonetheless, some vacated spaces are taken up by other occupiers “who are seizing the opportunity to lease prime space at more attractive rental rates”.
QBE Insurance, for instance, is moving to Guoco Tower, taking up the 31,000 sq ft of space vacated by Grab that is relocating to one-north. Amazon, on the other hand, is leasing 90,000 sq ft across three floors at Asia Square Tower 1 that Citi is giving up.
“Allowing half of an organisation’s workforce return to office is a game changer – this scenario gives companies a critical mass to truly assess their agility model going forward. Up to now, companies were not prepared to make decisions as no one was in the office. The market has taken the first step in the return to liquidity, driven by companies seeking smaller requirements and giving up space,” said Mark Lampard, Executive Director and Head of Singapore Commercial Leasing and Regional Tenant Representation.
Amid the worst recession on record, Grade A CBD rents continued to drop by 5.1% quarter-on-quarter to $9.84 per sq ft per month (psf pm) in the third quarter of 2020, in line with weak market sentiment.
Geopolitical tensions, however, nudged Chinese tech companies to shift to Singapore.
With plans to make the city-state as its regional hub for its expansion into the rest of Asia, ByteDance has applied for a license to operate a digital bank in Singapore. Tencent also plans to open a new office in the Republic, which it has chosen as its hub for its growth in Asia.
Another bright spot is the upcoming redevelopments of Fuji Xerox Tower and AXA Tower next year, which will displace 354,000 sq ft and 700,000 sq ft of office spaces respectively.
Cushman & Wakefield estimates that there were around 350,000 sq ft of new leases and expansions in office spaces by tech companies since the start of 2020. With this, it expects take-up by tech companies to increase to 400,000 sq ft to 500,000 sq ft next year.
“Should more Chinese tech firms adopt the same approach, we expect more movement in the Grade A market, particularly developments with large floor plates as these firms tend to favour such space specifications. The Marina Bay submarket has a sizeable footprint of offices that match these requirements,” said Christine Li, Head of Research, Singapore and Southeast Asia.
However, Cushman & Wakefield expects the office market to head into the final quarter of 2020 with significant challenges.
“The prevalence of staff working from home is expected to remain widespread in the short to medium term. The office sector will be reshaped by the increase in the remote working trend due to structural impacts, which will impact the leasing demand in the next 12-18 months,” it said.
Moreover, the recession resulted to a hike in retrenchments, which saw a number of energy firms and banks giving up space. With this, the full-year rental is forecasted to decline by 10% this year and further drop in 2021.
“The downward pressure from the recession and a prolonged period of work from home has resulted in a net reduction in office take up overall,” added Lampard.