Remote Work May Lead To 20-30% Office Downsizing

SINGAPORE – Analysts have identified a key trend in the city-state’s office market, namely the possible reduction in office space by 20 percent to 30 percent as remote work arrangement becomes the norm, reported The Edge on Monday afternoon (23 August, SGT).

Still, RHB analysts Vijay Natarajan and Loong Kok Wen believe that office space will remain important despite the growing trend of working from home (WFH).

“We believe many companies will still want to retain a physical presence in the city centre or in key business districts in other states,” they said. In line with this, they expect businesses to adopt a more formal hybrid model that blends both telecommuting and working in the office.

Aside from that, the duo thinks that demand for office space would be supported by the decentralisation of regional operations by firms as part of their risk management activities.

“There may also be some potential positive spillover to coworking spaces, due to the quality and flexibility offered, but the medium- to long-term impact is uncertain due to the cost differential between office rental and charges by coworking facilities,” they explained.

Meanwhile, Natarajan and Loong are upbeat that overseas property investors will continue to be drawn in by Singapore, as it has launched initiatives encouraging the construction of more sustainable and integrated office projects. Consequently, the duo remains bullish on the city-state’s office market.

“As sustainability and mixed developments will be the theme going forward, the country should attract high-profile corporate tenants that will support office rentals over the long term.”

However, the duo maintained their “overweight” rating for S-REITs. “Among all the sub-sectors, the office segment is second-best, preferred next only to the resilient industrial segment,” they shared.

According to Natarajan and Loong, investors should keep their exposure to firms and REITs with quality real estate as a long-term sustainable investment strategy. Their best picks are Suntec REIT and Prime US REIT.

“These REITs have ESG scores of 3 and above, based on our proprietary ratings,” added the analysts.