What is the outlook for decentralized office leasing vs Grade A CBD office leasing in Singapore over the coming year?
Leasing activity in the Singapore Grade A CBD market remained muted in the second quarter as brokers were unable to close deals during the circuit breaker period. With remote working continuing as the default mode, and corporate occupiers putting the brakes on expansion plans to focus on operational issues arising from the pandemic, future leasing demand in the short-term is likely to remain weak. A larger moderation in rents is expected in the third quarter as landlords compete to attract and retain key tenants. Grade A CBD rents are projected to decline at approximately -10% on a full-year basis in 2020. By comparison, decentralised offices are expected to be more resilient as a number of tenants could be mulling a shift to decentralised locations to lower real estate costs. Therefore, the full-year moderation of decentralised rents is expected to be milder at around -3 to -4%.
Looking at the current market sentiments, are smaller office spaces expected to yield more significant demand in Mumbai as compared to larger spaces?
Mumbai has a diverse office market, where core city markets have a mix of central and regional HQs where space requirements are usually smaller. The suburban markets are more preferred for large back office, captive centres and operations divisions of global corporates. In the wake of the pandemic, there have been discussions around diverse scenarios of firms scaling down their office footprint or reducing occupancy costs, but at the same time, de-densification and social distancing would be counter-intuitive towards increasing space needs. At the same time, Work from home is an evolving situation. While, for core city offices such small office requirements will remain active, the peripheral markets will continue to remain attractive for occupiers with needs which will be fulfilled only in such locations. Going forward, space needs will be married with occupancy costs as well. But requirements will work basis occupier use for the premises. Smaller offices will always work in a market like Mumbai which is has a diversified occupier base. To that extent, the trend for smaller offices has been active in Mumbai and will continue to remain.
For more on how India’s real estate market has responded to COVID-19 check out our latest report External Link.
What’s behind the particularly poor demand outlook in Sydney? and how do you expect Sydney to perform relative to Melbourne?
Between 14 March and 11 July, employment in NSW fell by 5.3% and office related employment fell by 4.9%. This could lead to reduction in space needs of about 135,000 sqm. Our TAG team reports a number of large occupiers are looking to sub lease space as a result of reduced employment and increased flexible working options.
Sydney is likely to outperform Melbourne where employment falls have been greater and there is significantly more new supply. Overall employment in Victoria fell by 7.3% and office related employment by 6.6% between 14 March and 11 July. Additional lockdown restrictions from a second COVID-19 wave in Melbourne are likely to further weaken the employment outlook. Melbourne is also experiencing a wave of new supply at a time of demand weakness. While most of the new stock is pre-committed, there is likely to be a significant overhang of back fill space. As a result of the new supply and weak demand, vacancy is expected to rise to over 10%.
What is the outlook for coworking environments post-COVID?
During the webinar the panel discussed the potential for distributed hub style working post COVID-19. This may support an entirely new purpose for coworking beyond simply supporting the needs of small businesses, namely the potential for large corporate brands to offer their employees another alternative place to work.
In effect this could act as a ‘third space’, somewhere where employees can escape from the “work from home” environment but avoid the potentially risky commute to the central office in the CBD. One of the great benefits of coworking is that it lends itself both to collaborative experiences with peers but also as a place to be productive and focussed within a professional environment.
How consistent have perspectives been towards “working from home” across Asia Pacific?
We recently completed our XSF@Home Survey External Link which assessed how the 50,000 individuals surveyed have found the experience of working from home. The results noted that productivity has remained remarkably strong, with 75% of respondents claiming to still be able to focus and collaborate effectively. The has been enabled by the fact that 90% of professionals feel like they have been adequately supported to perform within the home environment. However, we are also seeing a degree of downside too, with only 54% of workers reporting that they feel a sense of “wellbeing”, a product of the difficulty maintaining healthy work-life balance.
Specific to Asia Pacific, although generally there is little variation between the numbers, there does remain some regional nuance. Of note is that in countries like Singapore and Greater China we see a lower degree of perceived managerial trust, a potential long-term hurdle for post-pandemic work from home. On the other hand, we’ve seen much stronger company connection scores amongst employees in India, demonstrating dividends being paid to Indian businesses who have worked hard to grow organisational culture.
For more on the subject watch our recent webinar on how COVID-19 will shape the future of working External Link.
Get an extended look at all of the major trends set to play out over the coming months in Asia Pacific by downloading our H2 Insights Report here External Link.