Committed office leases helped mitigate occupancy declines last year: Knight Frank

SINGAPORE (EDGEPROP) - Pre-termination spaces continued to rise and were estimated at 330,000 sq ft in 4Q2020 (compared to 260,000 sq ft in 3Q2020), but occupancy levels for prime-grade offices remained supported by committed leases, says Knight Frank Research. This resulted in a q-o-q slight decline of 0.2 percentage point in prime-grade office occupancy in the last quarter of 2020.

As rental declines moderated in 4Q last year, prime-grade office rents in the Raffles Place/Marina Bay precinct contracted 10.2% in 2020, representing a 2% q-o-q decline to $10.16 psf per month in 4Q2020, as compared to a decline of 2.3% q-o-q in 3Q2020.

“Rental declines eased generally due to short-term renewals, as tenants adopted a wait-and-see approach until the economic outlook became more certain,” it adds.

In 4Q last year, businesses in the banking and insurance sectors started the trend of consolidating and paring down their real estate footprint as flexible work arrangements became more widely adopted.

Mizuho will trim about 16,800 sq ft in Asia Square Tower 2, while Sompo Insurance cut 40% of its 26,000 sq ft office space at Singapore Land Tower as it accommodated all staff on a hybrid work model, observes Knight Frank.

CIMB Bank was also reported to have leased more than 50,000 sq ft in 30 Raffles Place, less than their existing space of about 70,000 sq ft at Singapore Land Tower, it adds.

Meanwhile, positive demand drivers for office space came from the tech sector. Tech companies like ByteDance and Tencent announced plans for expansion into Singapore this year.

Other tech firms like Lazada are also looking to take up 100,000 sq ft of contiguous space at 5One Central, some 23% less than the 130,000 sq ft they currently occupy at AXA Tower, says Knight Frank.

Looking ahead, Knight Frank expects that “the permanent adoption of rotational remote working by many corporates is expected to lower the net new demand for office space”. This is despite the expected creation of 12,000 new job openings in the information and technology communications sector in Singapore, a result of the government’s commitment of $3.5 billion invested for ICT procurement in 2020, and a further $25 billion into research, innovation and enterprise activities till 2025.

“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,” it adds.

It therefore predicts that office rents may decline by 5% in 2021, before bottoming out and recovering in 2022.