• JLL’s Chris Archibold: The market will find its balance
Chris Archibold, JLL Singapore country head, sees Covid-19 as a catalyst for occupiers to provide agile, collaborative and efficient workspaces that employees want to work in. “One of the few positives from Covid-19 will be a more conducive and human-centric workplace for many of us,” he says.
Throughout the pandemic, businesses have faced uncertainties around their space needs. It is no different today. “Most of them are starting to see some light at the end of the tunnel due to the vaccination roll-out,” says Archibold. “But they are still working through their real estate portfolio needs and what the future of flexible working means to them.”
Like all shocks to the system, Covid-19 has created uncertainty, an inordinate amount of conjecture and some wild predictions about the future, relates Archibold. “By the middle of 2020, there were some very aggressive negative predictions around office demand due to working from home,” he says. “Six months on, these are being slowly pared back and we have even heard a few global CEOs telling employees to come back to the office full-time.”
When the dust settles, the market will find its balance, says Archibold. In his view, some industries and companies will adopt a hybrid model of work, where employees will have the flexibility to work in the office, from home or a third-party remote location.
“Working remotely has its benefits but also has its downsides,” points out Archibold. “Hence companies will find a balanced point based on the overall productivity, employees’ expectations and needs. The office will remain a primary place of work for most employees, as it is still an integral part of social collaboration and professional interaction.”
Re-emergence of occupier demand, confidence
Office rents in Singapore dropped 9.3% over the course of 2020 due to the headwinds and uncertainty created by the economic impact of Covid-19. Many occupiers put expansion plans and office moves on hold. Business leaders did not have the confidence to invest in expansion.
Since then, occupier demand and confidence have started to re-emerge, and activity levels have picked up, notes Archibold. Grade-A CBD rents levelled off in 1Q2021, with a 0.2% q-o-q fall, according to JLL. The three months from April to June saw a modicum of growth, with Grade-A CBD rents up 1.2 % q-o-q. For the whole of 1H2021, Grade-A CBD office rents nudged higher by 0.9%.
JLL remains optimistic about the prospects for Singapore’s office market, and expects Grade-A office rents to firm up in 2H2021, potentially culminating in a full-year growth of 2% to 3%.
“Fortunately, the underlying fundamentals of the Singapore office market are very strong in terms of a balance between supply and demand,” says Archibold. “And it offers a conducive business environment that encourages domestic and foreign investment.”
New office buildings such as CapitaSpring and Afro-Asia i-Mark Building that are completing this year, contribute to a total of 800,000 sq ft in net lettable area of office space. Both are already 70% taken up. “We have seen significant take-up in the CBD, especially across the technology sector,” says Archibold.
Sustainability, wellness differentiation
The pandemic has sped up occupiers’ desire to be located in buildings that boast strong wellness and sustainability credentials, adds Archibold. Such buildings are typically the newer Grade-A buildings in the CBD. The occupier demand trend is continuing to gather momentum and expected to remain for the long term. “The best businesses will continue to move to buildings that create the best environment for their staff,” he observes.
The heightened focus on “sustainable” and “well” buildings is where differentiation in rental rates and subsequent capital value premium will occur, he predicts.
Year-to-date, investors have acquired some $1.71 billion worth of Singapore office assets (equivalent to 76% of the office sales quantum for the whole of 2020). A record price of $4,050 psf was achieved for a strata floor in Samsung Hub in June 2021. “The affirmation that Singapore’s office rents have bottomed will likely intensify competition for asset acquisitions and drive a fresh wave of price appreciation,” notes JLL.
The CBD Incentive Scheme has led to quite a few announcements of redevelopment of office buildings into mixed-use developments with residences, for instance, Fuji Xerox Towers, Realty Centre and Maxwell House.
JLL estimates that owners of close to 10 CBD buildings have announced or are exploring plans for redevelopment. These redevelopment projects could yield 2.1 million sq ft of net lettable office space and more than 2,000 residential units in mixed-use projects to be completed between 2024 and 2027.
“The CBD Incentive Scheme has certainly accelerated the redevelopment of ageing offices in the city centre by motivating owners to evaluate redevelopment opportunities, even if not all decide to take advantage of the incentives offered by the scheme eventually,” says Archibold.