Pace of Right-Sizing Will Continue into 2021

Geraldine Cheong • 17/12/2020

CBD Office Rents to drop by 10 percent for the full year 2020 and will continue to decline into 2021 

In its latest Market Outlook 2021 video series, Cushman & Wakefield is projecting rents to land at S$9.54 psf/ month by end of 2020, a fall of 10 per cent from last year’s peak of S$10.66 psf/ month.  

Companies have started the process of negotiating for shorter leases, convinced that increased flexibility from a prolonged period of work from home will translate to a reduction in in real estate footprint needs. 

Mark Lampard, Executive Director and Head of Commercial Leasing Singapore said “Organisations in 2021 will be focused on working from home now being part of the new environment and the cost implications of this.  The debate has shifted from whether staff can work from home to how much employees will work from home”.  

Falling CBD office rents may herald some degree of flight to quality, particularly for the firms that are recording growth. But by and large, companies will resist capital expenditure. “it is logical that organisations in the CBD, where real estate costs are highest,  will place a priority on rental expense management,  Conversely companies who are based in the fringe or suburban markets have less room to impact their bottom line as rentals in these markets are lower,” Mr Lampard added. 

Co-working will therefore remain very relevant as it provides the much-needed flexibility for tenants in this climate of uncertainty.  

Demand for city-fringe and suburban markets is expected to remain healthy because Covid-19 has forced many firms to consider secondary office locations as part of business continuity planning. In fact, the rents in the city fringe and suburban offices are showing less of a decline compared to the Central Business District. Year-to-date 1Q-3Q 2020, CBD grade A office rents have fallen by 7.7 per cent as compared to City Fringe (all grades) and Suburban (all grades) office rents which fell only 1.5 per cent and 1.6 per cent respectively. 

Christine Li, Head of Research, Singapore and Southeast Asia, said “As Singapore develops its digital economy and attracts more tech related industries to set up operations in Singapore, cyber security becomes critical. Planning contingencies for secure secondary office locations has become a priority for many corporates and this trend will feed demand for city fringe and suburban locations, including business parks”. 

The development of the Central Boulevard site in 2021 will inject an additional 1.3 million sf of new supply in the CBD market and may put pressure on rents further. Nevertheless, prospects for demand remain bright as Singapore continues to attract a sizeable pool of blue chip corporates, particularly amongst pharma, biomedical, technology and its related suite of service providers.  

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