Tech Sector’s Mass Layoffs To Impact Office Demand
SINGAPORE – The number of tech companies announcing massive retrenchments have triggered fears that this would lead to more shadow space and hit demand for office space, reported The Edge on Friday afternoon (9 December, SGT).
“The tech sector is going through a rough patch right now,” said Savills Singapore’s Chief Executive Marcus Loo, who expects more shadow space to enter the market over the next few months.
“Tech firms and start-ups may be giving up or subletting their space as the cost of borrowing has increased significantly. Investors are also more prudent about how they deploy their funds.”
Tech firms that have announced significant manpower reduction include Meta and Twitter, which have respectively let go 13 percent and 66 percent of their global workforce. Amazon is shedding 20,000 workers, likewise for Google (10,000) and Cisco (4,100). Salesforce is slashing up to 2,500 jobs, while Stripe and Microsoft have retrenched about 1,000 employees each.
As of 6 December 2022, a total of 144,554 workers from 916 tech firms across the globe have been fired this year, based on redundancy tracker Layoffs.fyi. In Singapore, 1,270 employees have been retrenched in the tech sector between July and mid-November, of which 80 percent were in non-tech roles, like sales and marketing, revealed Manpower Minister Tan See Leng on 28 November.
Consequently, CBRE’s Co-head of office services in Singapore David McKellar expects some office and business park space will become available because of the large-scale layoffs in the tech industry.
“This may, however, be a brief moment in time as Singapore remains a regional tech hub,” he opined, adding they foresee the local office market to continue to grow over time.
However, office rental activity has slowed from six months ago, and Savills’ Loo is expecting “a correction” in office rents by 2023.
CBRE’s Song agrees. She forecasts that shadow space would increase as some tech companies give up office space on an “early surrender basis”. “In the near term, rising global macroeconomic headwinds and a tech sector consolidation could weigh on demand, and soften rental growth in 2023.”
While Grade A office rents in Singapore’s central business district rose by 7.4 percent during the first three quarters of the 2022, with full year growth forecasted to hit 8 or 9 percent, surpassing the 3.8 percent recorded in 2021, CBRE has slashed its 2023 forecast from 4.3 percent to around 1 percent.
Nonetheless, Savills’ Loo thinks the present weakening could “just be a blip,” but its duration is uncertain as macro factors come into consideration.
“The question is, when optimism about the economy will return. That does not appear to be in the near term.”
Still, the local authorities remain focused on growing the tech industry. “The Singapore government has been very far-sighted in terms of getting key players to increase their presence,” he added.