Things looking up for Singapore office market

/ EdgeProp
November 26, 2017 9:00 AM SGT
Singapore Grade A office rents rose 1.7% q-o-q in 3Q2017, the first uptick following 10 quarters of decline between 1Q2015 and 2Q2017, which saw rents falling 21% in total, according to CBRE in its 3Q2017 Asia Pacific Office Trends report. Market sentiment improved further amid signs the office market is turning the corner.
Over the next six months, CBRE expects rents to continue trending up as supply and vacancy come down. “With fears around new supply largely alleviated, landlords are increasingly confident and turning more aggressive in raising rents,” says the property consultancy.
As rents are set to increase over the next few years, firms should make decisions quickly, as availability in new projects is shrinking and vacancy is expected to stay low for some time, says CBRE.
According to CBRE, demand for office space is being led by firms in the technology, media and telecommunications sector, with IT and internet-based companies being the most active. Another source of demand comes from co-working operators, which are aggressively expanding.
The impact of co-working
Based on CBRE’s estimates as at 4Q2016, the amount of space taken up by co-working operators in Singapore increased 31% y-o-y to about 400,000 sq ft last year. This year, co-working space will grow another 80% to 718,000 sq ft, estimates CBRE. The proportion of co-working space to Singapore’s office stock will more than double from 0.3% in 2016 to 0.7% this year.
According to CBRE, co-working operators offer several benefits to landlords. Firstly, they tend to sign long leases, owing to the need to amortise fit-out expenditure, which allows landlords to lock in income for longer periods. Secondly, tenants that would not fit under a traditional lease can be accommodated in the co-working space through agreements with the operators. Companies that outgrow the co-working premises are also a potential source of tenants for landlords.
Through its venture fund C31 Ventures, CapitaLand recently invested in The Great Room, a hospitality-inspired co-working space provider that just expanded its operations at One George Street
Landlords have started to tap the growing co-working market and several have formed strategic partnerships with co-working operators, notes CBRE. Last year, CapitaLand launched the first premium co-working space in a Grade A office tower in Singapore’s CBD with the 22,000 sq ft Collective Works Capital Tower. It has since attracted tenants such as global venture capital firm 500 Startups and Nasdaq-listed B2B marketing consultancy Black Marketing.
Through its venture fund C31 Ventures, CapitaLand also recently invested in The Great Room, a hospitality-inspired co-working space provider that just expanded its operations at One George Street. CapitaLand is also partnering China’s co-working unicorn UrWork to provide co-working spaces in CapitaLand properties in China and Singapore.
In January, City Developments acquired a 24% stake in Distrii, an operator of co-working spaces in China, for RMB72 million ($14.7 million). Distrii’s first international foray will be at Republic Plaza. Slated to open in 2018, the co-working facility will take up more than 60,000 sq ft of space.
Meanwhile, there are landlords that have elected to launch their own co-working units. In March, Keppel Land launched KLOUD, billed as a new-generation serviced co-office that leverages technology and caters for companies seeking flexible space solutions. The flagship facility spans 18,000 sq ft on the 13th floor of Keppel Bay Tower and offers panoramic sea views.
Being landlord and operator of KLOUD at Keppel Bay Tower enables Keppel Land to offer more options to building tenants and incubate new businesses. The opening of KLOUD at Saigon Centre Tower 2 in Ho Chi Minh City, Vietnam, and Junction City Tower in Yangon, Myanmar, by end-2017 will offer companies the opportunity to scale their business networks. There are plans to establish more KLOUD serviced co-offices in markets where Keppel Land already has a presence, such as China, Indonesia and the Philippines.
The impact of technology
The growth of third-party space such as co-working centres and serviced offices is driven by technology, which enables employees to work offsite while fostering a more creative and sharing culture within companies, business units and individual teams.
Technology is the primary catalyst that will redefine Asia-Pacific’s workplace in the coming years. This is the conclusion drawn by CBRE, following its survey of 93 industry leaders in Asia-Pacific between June and August on the impact of technology on the workplace and jobs. Sixty-nine per cent of the respondents were employed by occupiers and 31% were employed by landlords.
The number of internet users in Asia-Pacific has increased 74% to 1.7 billion over the past five years, compared with 36% in the rest of the world. At the same time, the move towards a tech-enabled workplace has resulted in a stronger emphasis on improving the user-experience. More than half of the occupier-respondents in CBRE’s survey want a workplace that adapts to the needs of their people.
Traditionally, employees’ preferences were rarely considered in corporate real estate decision- making. However, this is set to change, as employees are increasingly acting as workplace influencers, leading to corporations incorporating connectivity and accessibility, as well as talent attraction and retention, into their decision-making. While location is expected to remain an important factor, buildings and work spaces will need to be far more flexible and adaptable than before to meet the changing needs.
CBRE’s survey found that occupiers are willing to adopt technology as it can drive operational efficiency and cost savings. However, landlords are reluctant to invest heavily in technology as they believe it could already be obsolete by the time a new building is completed, owing to the typical development period of three to five years.
Most new office buildings in Asia do not have committed anchor tenants when construction commences, which makes it challenging for developers to correctly anticipate the technology that potential tenants require. Nevertheless, landlords can implement basic features and build in greater flexibility for occupiers to implement the technology they need, advises CBRE.
As a result of better space utilisation and improvement in productivity, half of the occupier- respondents in CBRE’s survey expect to require less office space in the future. However, they will demand higher-quality space that supports collaboration, innovation and employee well-being, says CBRE.
Meanwhile, landlords are more confident about the outlook for demand, with only 32% of them expecting to see a decline. This is because they anticipate stronger aggregate demand from new start-ups and emerging industries.