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The Raffles Place and Marina Bay precincts saw prime grade office rents drop by around 10% last year, and is expected to continue to see low rents while remote work remains the default.
The Singapore government’s decision to extend remote work as the default arrangement has affected the recovery of property firms within the city-state.
The move comes as the government tries to minimize the risk of COVID-19 transmission at offices.
However, it has added to the headwinds facing developers and real estate investment trusts (REITs) amid questions on the future of offices.
Bloomberg reported that shares of commercial property developers and REITs have dropped since the authorities’ announcement last month.
Mapletree Commercial Trust and Far East Hospitality Trust fell 2.3% and 3.3%, respectively, while Frasers Hospitality Trust dropped 5.7%. Keppel REIT, on the other hand, increased by less than 1%.
Market sentiment was further dampened when the city-state’s two largest listed developers – CapitaLand and City Developments – revealed that they expect to post full-year losses. Last week, the two stocks fell by over 3%.
Justin Tang, Head of Asian research at United First Partners in Singapore, expects the new default to “cast a pall over occupancies going forward”.
Phillip Securities Research Analyst Terence Chua believes it will be harder to lease out vacancies if the work-from-home arrangement continues. There will also be pressure to reduce rents, he said.
In fact, buildings in Singapore are already registering lower rents. The Raffles Place and Marina Bay precincts, for instance, saw prime grade office rents drop by around 10% last year, said Knight Frank.
In a quarterly report, the property consultancy forecast Singapore office rents to fall by about 5% this year before bottoming out and rebounding next year.
Despite the expansion by global tech giants in Singapore, the office market saw companies such as Mizuho Financial Group and Citigroup trim space.
Tenants consider downsizing their hub spaces and are less willing to commit to longer-term leases, said TSMP Law Corp Partner Jennifer Chia, who heads the banking and finance as well as corporate real estate practices.
Some, however, remain positive that the market will pick up, said Bloomberg. A spokesperson for CapitaLand Integrated Commercial Trust said they have posted an increase in leasing inquiries in the past few months even as the work-from-home arrangement has been extended.
The spokesperson said firms will eventually adopt flexible or hybrid working solutions and accommodating them would ensure the relevance of office workspace.
“While office REITS and developers will feel the pinch in the short term, the innovative ones are using this opportunity to pivot to the office hub of the future,” said Chia as quoted by Bloomberg. “Industry players who are less able to reinvent themselves and those who do not have the resources to make the switch will be the biggest losers.”
Under Singapore rules, no more than 50% of a company’s employees can stay in the office at any point, while employers should ensure that staffs continue to work from home for at least 50% of their working time.
Trade and Industry Minister Chan Chun Sing said the work-from-home’s long-term impact on office demand is yet to be seen as the COVID-19 pandemic evolves. He noted that office space occupancy increased in Q4 2020 from the previous quarter, while vacancy rates slightly declined.
“The government will continue to monitor the market, and calibrate the supply of commercial properties if needed,” said Chan in a written parliamentary reply on Monday (1 February) as quoted by Bloomberg.
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