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Firms are looking at ways to reduce office space to save rent, and have also adopted more flexible working arrangements.
Office space vacancy in Singapore is expected to increase in the coming months as more companies look for ways to reduce their office footprint and save on rent amid the changes brought about by the COVID-19 pandemic.
Investment banking firm Societe Generale, for instance, will return one floor space at Marina Bay Financial Centre to its landlord, while Japanese bank SMBC will move out of Centennial Tower to CapitaSpring in 2022, reported The Straits Times (ST) citing sources.
Investment bank JP Morgan also plans to exit the 52-storey Capital Tower, leaving six consecutive floors or 150,000 sq ft of available space empty.
Based on Urban Redevelopment Authority (URA) data, the vacancy rate of office space increased from 11.8% in Q4 2020 to 11.9% in Q1 2021.
The latest office market beat report of Cushman & Wakefield in April noted growing vacancies within the Downtown Core area, as companies right-sized and adopted more flexible working arrangements.
The report expects sub-markets such as Raffles Place and Marina Bay to register higher vacancy rates in the next two years as more financial institutions, which are the key occupiers in these areas, pare down their office space.
Ashley Swan, Executive Director of Commercial Leasing at Savills Singapore, said companies typically downsize office space by between 20% and 30%.
US agriculture giant Cargill, which previously occupied three floors across CapitaGreen, slashed its office space by 30% when it returned one level to the landlord.
Meanwhile, about 600,000 sq ft of shadow office space, which are excess spaces that are sublet by tenants to ease their rental burdens, are returned to the market within the Central Business District (CBD) in Q1 2021, said Colliers International Executive Director of Occupier Services Bastiaan van Beijsterveld. Of these, around 35% to 40% have been backfilled by other tenants.
Suggested read: Guide to Buying Commercial Property in Singapore
Despite all these, Grade A CBD office rent climbed 1.2% quarter-on-quarter to $9.90 per sq ft (psf) in Q2 2021, after five consecutive quarterly drops since the start of the COVID-19 outbreak.
Demand is primarily driven by growth sectors such as wealth management, family businesses, technology and healthcare.
ST noted that e-commerce companies Lazada and Amazon committed 140,000 sq ft and 90,000 sq ft office space, respectively, while Chinese technology firm ByteDance continues to expand within Guoco Tower and One Raffles Quay.
Despite the uptick in rents, some industry players do not believe rents will increase further given the soft demand.
“Financial institutions and professional services are the biggest occupiers of office space in the downtown core. If the financial institutions are reducing their office footprint, I don’t think that hole can be fully filled by technology firms which are mainly driving the interest now,” said Nicholas Mak, Head of Research and Consultancy at ERA Realty.
“If fewer white-collar workers need to go to the office now, the food and beverage outlets that serve these workers will be negatively affected. Some may be forced to close down before the pandemic is over,” he added as quoted by ST.
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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this story, email: victorkang@propertyguru.com.sg
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