The Grade A office leasing market pretty much ground to a halt during the circuit breaker period and has remained in the doldrums ever since, a report yesterday noted.
Rent for Central Business District space fell 5.1 per cent in the third quarter to $9.84 per sq ft a month amid the worst recession on record.
Tenants are also feeling the pinch, given the business uncertainty, with those facing immediate lease expiry seeking short-term renewals.
There may be more pain to come as companies are conducting studies to determine their future office needs, with much office space underutilised while working from home remains the default during the pandemic.
"In the immediate to short term, the market is expecting a fraction of space to be returned vacant when occupiers renew their leases," said the Cushman & Wakefield (C&W) report.
Nonetheless, some vacated spaces are being taken up by other occupiers who are "seizing the opportunity to lease prime space at more attractive rental rates", it added.
For instance, QBE Insurance is relocating to Guoco Tower and taking up 31,000 sq ft vacated by Grab, which is moving to one-north. And Amazon is leasing 90,000 sq ft across three floors at Asia Square Tower 1 that Citi is giving up.
Mr Mark Lampard, C&W's executive director and head of Singapore commercial leasing and regional tenant representation, said that allowing half of an organisation's workforce to return to the office is a game changer, as this gives companies a "critical mass" to assess their agility model.
"Up to now, companies were not prepared to make decisions as no one was in the office. The market has taken the first step in the return to liquidity, driven by companies seeking smaller requirements and giving up space," he said.
One positive development comes in the form of Chinese technology companies expanding in Singapore due to geopolitical tensions, the report said. For example, ByteDance plans to make Singapore its regional hub for its expansion into the rest of Asia and has applied for a licence to operate a digital bank here.
Similarly, Tencent has chosen Singapore as its regional hub and plans to open a new office.
Another bright spot is the upcoming redevelopments of AXA Tower and Fuji Xerox Tower next year. This will displace about one million sq ft of office space, C&W said.
It estimates there have been 350,000 sq ft of new leases and expansions in office space by tech firms since the start of the year. C&W projects the take-up by tech firms to increase to between 400,000 sq ft and 500,000 sq ft next year.
Nonetheless, the Singapore office market heads into the fourth quarter with "significant challenges", it noted. In the short to medium term, the prevalence of staff working from home is expected to remain widespread. The office sector will also be reshaped by the increase in the remote-working trend owing to structural impacts, which will affect leasing demand in the next 12 to 18 months.
In addition, there has been a rise in retrenchments due to the recession, with a number of companies such as banks giving up space. Accordingly, the full-year rental change is still projected to tumble 10 per cent this year, with a further decline expected next year, C&W said.
Overall, the downward pressure from the recession and a prolonged period of working from home have resulted in a net reduction in office take-up, Mr Lampard said.
THE BUSINESS TIMES