PROPERTY consultants are cautiously optimistic about prospects for the Singapore office market, at least in the second half of this year.
"While the first half of 2021 is expected to show the continued grappling of the pandemic, the latter half is expected to display better results," said CBRE's head of research for South-east Asia, Desmond Sim. "Should economic activity and business sentiment improve on the back of the vaccine roll-out, the office market is poised to benefit from employment gains," he added.
The Urban Redevelopment Authority's (URA) office rental index for Singapore's central region fell 3.5 per cent quarter on quarter in Q4 2020, a smaller rate of decline compared with the 4.5 per cent drop in the Q3 2020. Net demand, measured by the change in occupied space, was positive 2,000 square metres in Q4 2020, contrasting with negative 19,000 sq m in Q3 2020. The islandwide vacancy rate dipped to 11.8 per cent at end-Q4 from 12 per cent at the end of the previous quarter.
Savills Singapore executive director Alan Cheong is sanguine about prospects for the Singapore office market - based on a scenario that assumes 80 per cent herd immunity against Covid-19 being attained by early 2022 for the US, the UK, Germany and France - either through infections or vaccination. The four countries are major markets in terms of being the countries of origin of many big office occupiers in Singapore; and all of them have high infection rates.
"Once herd immunity is in play, we question if WFH (work from home) will still be the norm. If it isn't, then a return to the office workspace may mean it will be business as usual (pre-pandemic asset management and investment guidelines) for landlords and investors. From feedback from large tech companies here, their underlying wish is still to have staff work in a communal environment where they can collaborate better. While we read or hear of tech companies setting timelines for their staff to WFH . . . they actually prefer the old norm . . . We believe that most companies will ultimately want their staff to return to the offices, and this pressure will increase when business conditions improve. When the pandemic blows over, the office rental and investment market will return with even greater force as both landlords and investors play catch-up for the opportunity cost loss during the pandemic," said Mr Cheong.
For the whole of 2020, URA's central region office rental index slipped 8.5 per cent, after falling 3.1 per cent in 2019.
JLL's head of research and consultancy for Singapore, Tay Huey Ying, noted that the index decline last year is just about one-third of the 23.5 per cent fall recorded in the first four quarters of the global financial crisis-led correction (from the office rental peak in Q2 2008 to Q2 2009). "Singapore's office market fundamentals are more sound this time around, and the government's Covid-19 response packages were swift and substantial."
She also noted that the islandwide office vacancy rate dipped for the second consecutive quarter to 11.8 per cent in Q4 2020, while Singapore's gross domestic product turned expansionary on a q-o-q basis in second-half 2020 after contracting in the first-half.
Cushman & Wakefield's associate director of research, Wong Xian Yang, said that despite the islandwide positive net demand in Q4, the Downtown Core area (which includes the financial district) saw a contraction of 16,000 sq m. "This means that there were more tenants giving up space than new take-ups. This led to Downtown Core vacancy rates rising to 10.3 per cent in Q4 2020 from 9.9 per cent in Q3 2020.
"The downtown office market has been especially hit due to higher rents and occupiers adopting cost containment strategies due to the uncertain business climate." For the whole of 2020, however, net demand in Downtown Core was +41,000 sq m, though this figure is lower than the +101,000 sq m in 2019. Islandwide, office space net demand for last year was -79,000 sq m, contrasting with +155,000 sq m in 2019.
Mr Wong said: "Some tenants with upcoming lease expiries are seeking short-term renewals and flexible lease terms in the face of business uncertainties. In the short term, the market is expecting a fraction of space to be returned vacant when occupiers renew their leases." That said, he expects rents to bottom in 2021, citing the positive long-term outlook for Singapore's office market, underpinned by increasing demand from tech and investment companies as well the city state's appeal as a regional headquarters location.
Ms Tay of JLL noted that with the pandemic raging on, the majority of occupiers are expected to stay prudent with their real estate needs. This will keep demand measured.