Back to work: Chinese tech companies, wealth management firms to drive office demand in Singapore

Time spent working from home is expected to decrease to around 15%-25% of an average employee’s workweek.

Prime Grade office rents in the Raffles Place / Marina Bay precinct continued to decline in the first quarter of 2021, falling moderately by 1.0% quarter-on-quarter (q-o-q) to S$10.06 per square foot per month (psf pm). Downward pressure on rents was nullified by committed occupancy at about 94.2% for prime offices in the precinct.

The increase in shadow space also showed signs of slowing in Q1 2021 with an estimated 344,000 sf. This had initially risen from 170,000 square feet (sf) in Q2 2020 to 330,000 sf by the end of 2020. Given the improving economy, pre-termination space is expected to taper off and start to fall in 2021.

Despite the enforced period of remote working in the past year, business leaders are increasingly cognisant that productivity from working in the office can be higher as critical face-to-face interactions facilitate better overall outcomes. Therefore, as telecommuting winds down with the government allowing more to return to the office from Q2 2021, the balance of time spent working from home (WFH) is expected to decrease and stabilise at around 15%-25% of an average employee’s workweek, depending on the nature of the industry and the worker’s profile. The need for office space remains central for functions where co-mingling is paramount for collaboration and workplace productivity, especially in sectors such as the technology industry.

Chinese technology companies with established business models continue to drive demand for office space, especially in the CBD. Chinese online financial services platform Futu opened their regional headquarters at SBF Centre, while TikTok leased about 58,000 sf in Guoco Tower, absorbing space previously vacated by Dentsu Aegis Network in addition to the 100,000 sf already committed at One Raffles Quay.

The wealth management industry is also expected to contribute to office demand. Singapore’s management of the pandemic, an attractive tax regime as well as political tensions in other parts of the region, stimulated the inflow of private wealth. This resulted in the total deposits of residents outside Singapore in the city-state’s financial institutions rising 20% year-on-year (y-o-y) in January 2021, leading to the downstream creation of jobs and consequent demand for office space.

Singapore’s enhanced reputation as a stable location in a volatile world, also attracted C-suite and upper management from multi-national conglomerates to increasingly choose to be based in Singapore.

Economic Sentiment and Outlook

Even though the Singapore economy contracted by 5.4% in 2020, the Information & Communications (ICT) sector grew 2.1% fuelled by the demand for IT solutions, and the finance & insurance (FI) sector expanded by 5.0%.

In 2021, the technology and the financial sectors will lead the stabilisation and recovery in the office market with growing headcounts, as the practice of wealth management continues to grow within the digital sphere. Ongoing investments to elevate Singapore’s tech ecosystem include a US$50 million pledge by Dell Technology, that would create more than 160 jobs.

With economic recovery gaining traction and GDP growth in 2021 forecasted at 4.0% to 6.0%, the unemployment rate declined from November 2020 (3.4%) to January 2020 (3.2%), with the labour market turning a corner. Resident employment in the ICT sector rose by 1,300 q-o-q in Q4 2020 with 4,900 vacancies as of end-December 2020, and the FI sector recorded 3,700 vacancies, contributing to the demand for professionals, managers, executives and technicians (PMETs). According to the MAS Survey of Professional Forecasters March 2021, the unemployment rate is expected to fall to 2.9% this year.

With growing business optimism, pre-commitment rates at upcoming office buildings CapitaSpring and Afro Asia I-Mark reached 60% with the conclusion of several advanced negotiations. With the easing of WFH rules and as businesses rally employees back to the office to gear up to retake ground lost to the pandemic, the decline in office rents will be more benign in 2021, easing by about 5% before bottoming out late in the year and recovering in 2022.