SG Office Market To Do Better By H2 2021

SINGAPORE – Real estate experts are optimistic that the city-state’s office market would fare better during the second half of this year, reported The Business Times on Saturday morning (23 January, SGT).

“While the first half of 2021 is expected to show the continued grappling (with) the pandemic, the latter half is expected to display better results,” said Desmond Sim, Research Head for Southeast Asia at CBRE.

“Should economic activity and business sentiment improve on the back of the vaccine roll-out, the office market is poised to benefit from employment gains,” he explained.

The rosier prediction comes after government data showed that office rents here dropped in Q4 2020 by 3.48 percent quarter-on-quarter and 8.53 percent year-on-year.

Similarly, Alan Cheong at Savills Singapore is upbeat on the office market’s outlook. The Executive Director doubts that work from home (WFH) will still be prevalent if the assumed 80 percent herd immunity against COPVID-19 is achieved by the home countries of major office tenants in Singapore by early 2022 either via vaccination or infections.

Home countries of top office occupiers in Singapore include the UK, the US, Germany, and France.

“Once herd immunity is in play, we question if WFH will still be the norm. If it isn’t, then a return to the office workspace may mean it will be business as usual for landlords and investors.”

He revealed that major tech firms in Singapore still want their employees to work in a workplace where they can collaborate better. While it has been reported that tech companies are poised to institutionalize WFH, they actually prefer the traditional office setting. They ultimately want their workers to return to the office, and this yearning will increase once business conditions improve.

“When the pandemic blows over, the office rental and investment market will return with even greater force as both landlords and investors play catch-up for the opportunity cost loss during the pandemic,” Cheong opined.

Meanwhile, Cushman & Wakefield’s (C&W) Associate Research Director Wong Xian Yang revealed that Singapore’s Downtown Core area, which covers the financial district, recorded a net office demand drop of 16,000 sq m (172,222 sq ft) in Q4 2020 despite positive net demand across the city-state.

“This means that there were more tenants giving up space than new take-ups. This led to Downtown Core vacancy rates rising to 10.3 percent in Q4 2020 from 9.9 percent in Q3 2020.”

“The downtown office market has been especially hit due to higher rents and occupiers adopting cost containment strategies due to the uncertain business climate.”

While net demand in Downtown Core for the whole of 2020 reached 41,000 sq m (441,320 sq ft), this is significantly lower than the 101,000 sq m (nearly 1.09 million sq ft) recorded in 2019. Overall, office space net demand in Singapore plunged to -79,000 sq m (-850,349 sq ft) in 2020 from +155,000 sq m (1.67 million sq ft) during the previous year.

“Some tenants with upcoming lease expiries are seeking short-term renewals and flexible lease terms in the face of business uncertainties. In the short term, the market is expecting a fraction of space to be returned vacant when occupiers renew their leases,” Wong noted.

Nonetheless, he foresees that office rents would hit rock-bottom this year due to the office market’s rosy long-term prospect, which is supported by higher office space demand from tech and investment firms, in addition to Singapore’s attractiveness for setting up regional HQs.

But as the COVID-19 pandemic rages, demand is expected to be moderated as most office tenants are expected to remain cautious and prudent in their office space take-up, added Tay Huey Ying, Research Head for Singapore at property consultancy JLL.