Leasing activity for Grade A offices in Singapore came to a halt during the “circuit-breaker” period and remained sluggish during the third quarter this year, according to a press statement by Cushman & Wakefield (C&W) on Tuesday.
In the face of business uncertainty, tenants with immediate lease expiries are seeking short-term renewals. And with office space underutilised as work from home remains the default, firms are conducting workplace strategy studies to determine their future office needs, C&W said.
“In the immediate to short term, the market is expecting a fraction of space to be returned vacant when occupiers renew their leases,” the real estate services firm noted.
Nonetheless, some vacated spaces are being taken up by other occupiers who are “seizing the opportunity to lease prime space at more attractive rental rates”, C&W said.
For instance, QBE Insurance is relocating to Guoco Tower and taking up 31,000 square foot (sq ft) of space vacated by Grab, which is moving to one-north. Meanwhile, Amazon is leasing 90,000 sq ft across three floors at Asia Square Tower 1, which Citi is giving up.
Mark Lampard, executive director and head of Singapore commercial leasing and regional tenant representation, noted that allowing half of an organisation’s workforce to return to office is a “game changer”, as this gives companies a “critical mass” to assess their agility model.
“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,” he said.
Amid the worst recession on record, Grade A central business district rents continued to decline 5.1 per cent quarter on quarter to S$9.84 per sq ft per month in Q3, in line with weak market sentiment, C&W noted.
One positive development is a new demand driver in the form of Chinese tech firms expanding in Singapore due to geopolitical tensions, it added.
For example, ByteDance is planning to make Singapore its regional hub for its expansion into the rest of Asia and has applied for a licence to operate a digital bank in the Republic. Similarly, Tencent has chosen Singapore as its hub for its growth in Asia and has plans to open a new office in the city-state.
Another bright spot is the upcoming redevelopments of AXA Tower and Fuji Xerox Tower in 2021, which will displace 700,000 sq ft and 354,000 sq ft of office space respectively, C&W added.
Going by the firm’s estimates, there were about 350,000 sq ft of new leases and expansions in office space by tech firms since the start of the year. C&W is projecting the take-up by tech firms to increase to between 400,000 sq ft and 500,000 sq ft next year.
Nonetheless, the Singapore office market heads into the fourth quarter with “significant challenges”, C&W said.
In the short to medium term, the prevalence of staff working from home is expected to remain widespread. The office sector will also be reshaped by the increase in the remote-working trend due to structural impacts, which will affect the leasing demand in the next 12 to 18 months, according to the statement.
In addition, there has been a rise in retrenchments due to the recession, with a number of firms such as banks giving up space. Accordingly, the full-year rental change is still projected to tumble 10 per cent this year, with a further decline to be expected in 2021, C&W said.
Overall, the downward pressure from the recession and a prolonged period of work from home have resulted in a net reduction in office take-up, Mr Lampard said.