This comes as some firms are hesitant to commit to office space during the uncertainty surrounding COVID-19. 

Office rents in Singapore are expected to remain lower for longer as firms review their office space needs, reported The Business Times (BT).

Rents for older buildings are also forecasted to remain under pressure amid a ‘flight to quality’.

Dr Lee Nai Jia, Deputy Director of NUS’ Institute of Real Estate and Urban Studies (IREUS), noted that key drivers for office demand in the CBD area were finance and insurance, and real estate, professional services and administrative and support services (FIRE) sectors.

“The performance of the FIRE sectors had a direct bearing on the demand and rents of offices in the CBD,” he said as quoted by BT.

And as the COVID-19 pandemic hit Singapore’s shores, the finance and insurance sector posted a marginal drop in GDP.

In 1H 2020, the information and communications (I&C) as well as the real estate, professional services and administrative and support services sectors also recorded declines in their respective GDPs, and were more adversely impacted than the finance and insurance sector.

While these sectors saw their GDP rebound in 2H 2020, only the finance and insurance and the I&C sectors expanded for the entire 2020 at 5% and 2.1% respectively.

However, the Central Area’s rental index slumped nearly 9% year-on-year in Q4 2020.

Dr Lee attributed the weakness within the office rental index to several possible reasons. For starters, he believes landlords, especially those of older office buildings, may have seen lower bargaining power due to the increasing vacancy rate.

Firms may also be hesitant to commit to office space considering the uncertainty surrounding the COVID-19 situation. Moreover, many employees are still working remotely.

Some firms may also turn to co-working spaces, which offers them the flexibility to scale up or down, depending on their needs.

Dr Lee expects the recovery in the rental index to take longer than during the global financial crisis (GFC), despite the limited supply in the pipeline.

“Rents of older buildings are likely to be under pressure, while there may be a ‘flight to quality’ as firms collocate to newer buildings, but take up less space,” said Dr Lee.

During the 2008/2009 GFC, the finance and insurance sector saw GDP retreat from Q3 2008 to Q1 2009, falling by up to 6.5% in Q4 2008 before recovering from Q2 2009.

The I&C sector as well as the real estate, professional services and administrative and support services sector, on the other hand, weathered the crisis better than the finance and insurance sector.

Office rents within the Central Area dropped 6.5% quarter-on-quarter in Q4 2008 but continued to be depressed for a longer period compared to the finance and insurance sector, recovering only from 2010.

Source: CommercialGuru, 11 March 2021