PROPERTY consultancy Knight Frank is expecting office rents in Singapore to fall by around 5 per cent in 2021 before bottoming out and recovering in the following year, barring new strains of the Covid-19 virus and consequent lockdowns.
This comes amid a projected 5.3 million square feet (sq ft) of new supply islandwide from Q4 2020 to 2023, with central business district (CBD) occupancy for the period estimated to hit 94.1 per cent and overall prime office rents to average S$10.16 per square foot per month.
In its latest Q4 2020 report on the Singapore office market, Knight Frank said it foresees lower net new demand for office space, given the permanent adoption of rotational remote working by many corporates.
Examples include Mizuho and Sompo Insurance, which recently trimmed about 16,800 and 26,000 sq ft from their office spaces in Singapore respectively.
CIMB Bank in December 2020 was also reported to have leased over 50,000 sq ft in 30 Raffles Place, formerly known as the Chevron House. Knight Frank highlighted that this is less than its existing space of 70,000 sq ft at Singapore Land Tower.
“The rethinking of traditional office space usage in an age of flexible work arrangements, and the casualties of the Covid-19 pandemic as the government withdraws business support measures, will likely add to contractionary pressures for office space,” the consultancy added.
While Knight Frank expects the trend of consolidating and paring down real estate footprint to persist among the banking and insurance sectors, it believes that information and technology communications (ICT) companies will remain active in the office market.
Tech giants such as ByteDance and Tencent announced expansion inroads into Singapore this year as ICT firms inadvertently benefited from the Covid-19 pandemic, it noted.
“With an estimated S$3.5 billion invested for ICT procurement in 2020 and a further S$25 billion into research, innovation and enterprise activities till 2025, global firms and family offices have been and will continue to be drawn to set up in Singapore,” it said.
Other factors that will boost Singapore as an office destination includes the Singapore government’s effective handling of the Covid-19 outbreak, as well as the government’s commitment to developing key sectors of the economy, added the consultancy.
Its research shows that prime grade office rents in the Raffles Place/Marina Bay precinct contracted 10.2 per cent in 2020, as rental declines moderated in the final quarter of the year to dip by 2 per cent quarter on quarter, compared to the 2.3 per cent decrease in Q3.
While pre-termination space increased to an estimated 330,000 sq ft in Q4 2020 from 260,000 sq ft in the previous quarter, occupancy levels for prime grade offices remained supported by these committed leases to result in a slight 0.2 percentage point quarter-on-quarter decline in Q4.
By Michelle Zhu, The Business Times/ 19-Jan-21