Back to the office in 2022

Prime Grade office rents in the Raffles Place / Marina Bay precinct increased for the third consecutive quarter in Q1 2022 after bottoming out in mid-2021. Prime office rents inched up 1.2% q-o-q to S$10.25 psf pm, extending the 1.7% growth in H2 2021. As the COVID-19 situation stabilises and more return to the office, the previously tenant-led leasing market will move towards more balance between landlords and tenants.

Occupancy levels in the Raffles Place/Marina Bay precinct bounced back in Q1, improving by 2.3 percentage points to 94.1% as tenants successively filled up the fully leased CapitaSpring building. While about 147,000 sf of shadow space was introduced into the market with some banks continuing to downsize, bringing total pre-termination space to about 226,000 sf in Q1 2022, these spaces are expected to be filled sooner rather than later with the easing of COVID-19 restrictions in the workplace.

With the government’s push for single ownership in key central areas, office buildings will be better managed (both the hardware and software), while tenants can also achieve scalability. Therefore, the restrictions on strata subdivisions in commercial complexes in these CBD areas will pave the way for more world-class office spaces commensurate with Singapore’s status as a global business hub. Quality office space will become increasingly paramount, as employees now expect work environments to be more conducive than homes to induce a return to physical offices.

According to a March 2022 report by the European Chamber of Commerce in Hong Kong, almost half of the companies (49%) surveyed were planning to either fully or partially relocate from the country due to geopolitical tensions and stringent COVID-19 measures. Singapore is expected to be a key beneficiary and was identified as the greatest competitive threat to Hong Kong by 80% of the respondents. Some professionals and companies are likely to relocate to Singapore, undergirding office demand.

The expansion of technology players and non-bank financial services was again a top driver of office space demand. Chinese tech firms continued their expansion to Singapore given regulatory curbs and mounting tensions from key markets. Examples include Chinese online retailer Shein recently taking up 22,000 sf of space in MBFC Tower 3, and Cryptocurrency firm Yescom Technology (formerly Huobi International) taking up 17,000 sf in Millennial Tower.

While technology companies are embracing remote working models to attract globally dispersed talents, the need for physical hubs with supporting digital infrastructure is not diminished. Some 39% of global tech leaders in the 2021 KPMG Technology Industry Survey believe physical hubs to be vital for the coalescence of ideas, and 92% are convinced that offices will exist at least for the next four years. Singapore, which topped KPMG’s ranking of leading technology innovation hubs, is primed to attract tech firms to establish offices here.

With Russia’s invasion of Ukraine bringing a new dimension of uncertainty, the significant lifting of COVID-19 curbs from 29 March is expected to provide a much welcome boost.

For 2022, GDP growth is forecasted to be in the range of “3.0% to 5.0%”. The ManpowerGroup Outlook Survey Q2 2022 revealed that 42% of Singaporean companies expect to increase their headcount, led by IT, Technology, Telecoms, Communications and Media with the strongest outlook at 38%. Fintech company Wise, for example, plans to hire 150 Singapore office roles this year.

With the limited upcoming supply of CBD Grade A offices and the government not expected to release land sites for office use in the short-term, office leasing activity is expected to remain firm especially as up to 75% of employees are now allowed to return to the workplace. Going forward, Thanos Realty maintains a forecast of 3% to 5% growth in rents for the whole of 2022.