Real Estate Talk: Singapore Office Market - Q&A with Rick Thomas

Q: Can you tell us what you saw happening in the office market last quarter?

As Singapore entered the Circuit Breaker on 7 April – which lasted until 1 June 2020 – we saw the onset of rental declines.

Starting from a higher base, Premium Grade A building rents slid 2.3% quarter-on-quarter (QOQ). As landlords were clearly focusing on tenant retention, there was – and still is – room to negotiate the prices down. We even saw rents going down as much as 10% for Grade B buildings for both renewals and new leases.

"The workplace has fundamentally changed forever, with remote working now a proven norm and flexible workspace options rising in popularity... This doesn’t mean this is the end of working in the office. This just means that the workplace is set to evolve."

In tandem, vacancy rose to 4.6% in Q2, from 3.1% in Q1, led by new completions. This will rise further as the year progresses and new supply enters the market. Our Research has forecasted vacancy could rise to 7.5% by end of 2020. This means we can expect rent to continue dropping.

Related content: Opportunities for Resilient Occupiers | Office Q2 2020 report

Q: What drove demand last quarter?

The demand driver last quarter was mainly the Flexible workspace sector, which had already committed to expand. New space take-up included JustCo’s 45,000 sq feet new branch opening at OCBC Centre East and Arcc Spaces’ 19,000 sq feet flagship centre at One Marina Boulevard. 

Artist impression of JustCo at OCBC Centre East (Image: JustCo Global)

Q: The Circuit Breaker period had forced most businesses to work from home or remotely. Do you think working from home will continue, even once the pandemic is over?

The workplace has fundamentally changed forever, with remote working now a proven norm and flexible workspace options rising in popularity.

However, this doesn’t mean this is the end of working in the office. This just means that the workplace is set to evolve.

Occupiers are now considering whether their offices will be a place to work or a place to meet and factoring this into their overall real estate strategy.

"A Flex-and-Core™ strategy provides flexibility – and the ability to quickly redeploy teams – so they continue to collaborate and be productive."

From automated workplace monitors, space optimisation solutions and ergonomic workstation design, a steady stream of innovations can help businesses operate more efficiently, comply with emerging regulations and deliver wellness, sustainability and efficiency.

Q: Given all this, what can we expect for the office market in future?

Going forward, Flexible Workspace and Technology sectors will continue to be the key drivers of office demand.

Occupiers will look at adapting their real estate strategy to be more aligned to their business model, likely rationalising their real space requirements and accelerating technology adoption. We can expect occupiers to consider a Flex-and-Core™ strategy or split office locations.

"The demand for flexible workplaces is likely to grow further… The landscape will be competitive, providing opportunity for occupiers to seek space for relocation or expansion on favourable terms."

A Flex-and-Core™ strategy provides flexibility – and the ability to quickly redeploy teams – so they continue to collaborate and be productive. There are a variety of options on how the space can be used: Different sizes of spaces for different purposes allow companies to drive the value of real estate harder in their portfolios, hence better space utilisation and management of workspace cost.

The demand for flexible workplaces is likely to grow further, due to the changing nature of demographic of the workforce, and the expectations from staff on management. It will continue to be one of the key drivers of office demand (together with technology).

The landscape will be competitive, providing opportunity for occupiers to seek space for relocation or expansion on favourable terms. They could even consider decentralisation strategies, moving away from the central business district (CBD) to business parks or suburban areas where rents are lower than the CBD, or even explore Hub and Spoke or satellite office strategies.

You may also like: 

• 4 ways to return to - and rebuild - your future workplace after COVID-19
• COVID-19: The silver lining for occupiers
• Recommendations for flexible workspace

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