Offices downsize space as flexible working holds sway

By
/ EdgeProp Singapore
|
January 15, 2021 6:00 AM SGT
SINGAPORE (EDGEPROP) - With vaccines being rolled out in countries worldwide, will life return to normal soon? That is the question everyone wants answered. Will the office return to days of its past glory, or will the near future be a mix of operating out of homes and out of the workplace?
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Expansion of businesses in the tech sector and in non-bank financial services has been a major demand driver for office space in Singapore, contributing to over half of the leasing volume in 2020 (Credit: Samuel Isaac Chua/ The Edge Singapore)
“This is not a straightforward yes or no. What is certain is that occupiers are going for shorter lease terms to factor in a more flexible working environment,” says Mark Lampard, executive director, head of commercial leasing for Singapore, at Cushman & Wakefield (C&W).
To that end, Savills Singapore has also observed that “an increasing number of companies have started to consider giving up 20% to 30% of their space as they implement some sort of permanent flexible work arrangement”, shares Ashley Swan, head of department, commercial, at the firm.
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The decision to cut office space is a complicated one, however. “In deciding whether or not to reduce footprint, corporate occupiers need to ask themselves – firstly, what does the workforce want. Many are surveying employees on the kind of work environment they want, and how often they will come into the office,” says Lampard.
He adds: “Secondly, what is the environment that will generate productivity and keep the levels at its optimum? And thirdly, how can organisations balance the three big cost items in operating a business: manpower, technology, and IT infrastructure and real estate?”
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Whether or not businesses return to the office will likely vary across industries, as requirements in workplaces differ. “Companies which have had their profits slashed are focusing on expense management and have hypersensitivity on real estate costs. If they can do more with less, cost is key,” says Lampard.
“Conversely, there are companies that have not been as dramatically impacted and have come to the realisation that their business can be done differently with less real estate. These groups will incorporate change in their work environment, but at a more deliberate pace,” he says.
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Adoption of a flexible working arrangement could also be slower among large corporations. This is because many MNCs are not only considering local restrictions, but also adhering to broader, global standards that may vary from one country to another, explains Swan.
But Lampard is confident that as offices are downsized, companies will, at the same time, look to improve the quality of the office environment “to create a place where staff want to be”, and enhance IT infrastructure to enable a more flexible working environment.
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Tech and finance remain key demand drivers for office space

Despite the broad economic gloom, expansion of businesses in the tech sector and in non-bank financial services has been a major demand driver for office space in Singapore, contributing to over half of the leasing volume in 2020. CBRE expects this to continue well into this year, with office demand driven by Chinese tech firms and companies in the financial industry, such as investment management companies and hedge funds.
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Based on preliminary estimates, the decline in occupied office space slowed down in 4Q2020, notes CBRE. Net absorption for the whole of 2020 amounted to a decline of 560,000 sq ft of office space. Throughout 2020, the take-up rate of buildings completed in the year were slow, and this was further impacted by the pandemic. As firms cut their footprint, vacancy rate rose from 4.5% in 4Q2019 to 6% in 4Q2020, it highlights.
With emerging vacancies in the market, Grade-A (Core CBD) office rents also faced downward pressure. In 4Q2020, Grade-A (Core CBD) office rents corrected for its fourth consecutive quarter, declining at 2.8% q-o-q to $10.40 psf per month, CBRE adds. This represented a full-year decline of 10% in Grade-A (Core CBD) office rents, reversing the rental growth of 6.9% in 2019.
This year, office rents are not yet out of the doldrums. Knight Frank expects rents to fall between 5% and 10% in 2021, a 20% decline from its peak in end-2019. And by the end of 2021, average Grade-A rents may fall to as low as $8.50 psf per month, it says.
This will be a boon for “firms looking to enter the Southeast Asian region or solidify their presence, [as] Singapore’s office market will present attractive entry points in 2021, not only from a rental but also a supply perspective, with several high-quality, low-commitment new buildings entering the market in the next few years”, it explains in a recent report.
To that end, five new projects are estimated for completion this year, which will add some 1.23 million sq ft to the entire office supply. Out of the five, only one, CapitaSpring, will be a Grade-A office development. CapitaSpring will contribute 650,000 sq ft of office space to the Grade-A (Core CBD) market, points out CBRE.
CBRE forecasts that in the early months of 2021, Grade-A (Core CBD) rents will face further downward pressure. However, it is positive that office rents are expected to improve in the second half of the year, which would result in an overall positive rental growth for the full year.
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Change in office function

For about a year now, the majority of the workforce have been accustomed to working from home. But in a survey conducted with property owners and office-occupiers, C&W found that in-office workers are more likely to innovate and create. “Many focus group participants agreed that innovation and creativity thrive when people are together and suffer when they are separated. Unlike operational tasks and project update meetings, the creative process is often more ephemeral, organic and less scheduled,” it says.
However, the lack of workplace congregation in 2020 has paved the way for the idea that the office will grow out of its old role. “There is … likely to be a shift in how a typical office is configured in the near future, with less emphasis on dedicated workstations and a move towards more innovation and collaborative spaces (eg, in-house cafes, larger pantries, more meeting rooms, and open desk seating areas); which could also see more unutilised space returned to the market,” states Knight Frank.
When it comes to the future role of the office, the global consensus is aligned — out with the cubicles, in with the open space layouts.