Singapore – February 2021 MARKET IN MINUTES Offi ce Savills Research Savills team Please contact us for further information SINGAPORE Marcus Loo CEO, Singapore +65 6415 3893 [email protected] Ashley Swan Executive Director Commercial +65 6415 3872 [email protected] Rents soften marginally in Q4 RESEARCH Although offi ce leasing activity was generally more muted in Q4 compared Alan Cheong Executive Director to other quarters in the year, it was broadly similar to Q4/2019 levels. Singapore +65 6415 3641 • Demand for offi ce space largely emanated from tenants quarter-on-quarter (QoQ) to 7.0% in Q4/2020. On the back of [email protected] looking for replacement space because of the need to move more completions and reduced demand in 2020, the vacancy Simon Smith out of older buildings to be redeveloped, as well as tenants rate grew signifi cantly by 2.6 ppts year-on-year (YoY). Senior Director with offi ce leases due for renewal. Asia Pacifi c • The average monthly rents in Savills basket of CBD Grade A +852 2842 4573 • Owing to the uncertainties arising from the pandemic, tenants offi ces declined by 1.8% QoQ to S$9.52 per sq ft in Q4/2020. [email protected] are continuing to adopt a wait-and-see approach and looking In 2020, CBD Grade A offi ce rents fell by 5.6% YoY, a reversal MCI (P) No. 022/10/2020 for clarity on trends to emerge on future workplace practices from the 2.9% increase posted in 2019. Company Reg No. 198703410D before deciding on future offi ce space requirements. Savills plc • Headline CBD Grade A offi ce rents are projected to fall by Savills is a leading global real estate service provider listed on • In Q4, the offi ce market saw relatively signifi cant leasing deals 5% to 6% in 2021. However, with vaccination programs the London Stock Exchange. The company established in 1855, has from technology companies. These companies are expected to accelerated, there is clearly light at the end of the tunnel and a rich heritage with unrivalled the tail risk is that rents could even see a modest rise. growth. It is a company that leads continue expanding their presence in Singapore, which they rather than follows, and now has deem as an attractive base due to its political stability, strategic over 600 offi ces and associates throughout the Americas, Europe, position and strong economic fundamentals. Asia Pacifi c, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or • As tenants moved into the newly completed buildings, net “ Although rents are expected quoted in part or in whole, nor may it be used as a basis for any demand for CBD Grade A offi ce buildings tracked by Savills contract, prospectus, agreement returned to positive territory in Q4 with 396,000 sq ft to fall in 2021, there is a rising or other document without prior consent. Whilst every eff ort has absorbed. This propped up the entire year’s net demand to been made to ensure its accuracy, probability that they could Savills accepts no liability 221,000 sq ft. whatsoever for any direct or consequential loss arising from its fare better than anticipated.” use. The content is strictly copyright and reproduction of the • The overall vacancy rate of Savills basket of CBD Grade A offi ce whole or part of it in any form is buildings inched up slightly by 0.2 percentage points (ppts) ALAN CHEONG, SAVILLS RESEARCH prohibited without written permission from Savills Research. savills.com.sg/insight-and-opinion/ 1 Offi ce MARKET COMMENTARY Three of reopening of the economy on 28th GRAPH 1: Net Demand, Net Supply and Vacancy Rate December 2020, the work-from-home (WFH) of CBD Grade A Offi ces, 2015 to 2020 Following the phased resumption of economic activity after the Circuit Breaker arrangements remained, with WFH the default Net demand (LHS) Net supply (LHS) Vacancy rate (RHS) period and the re-opening of major mode of working. Also, not more than half of a 3,000 40% economies as they emerged from lockdowns, company’s employees can be at their workplace 35% advance estimates by the Ministry of Trade at any point in time. Therefore, while there 2,500 had been an improvement in the number of 30% and Industry (MTI) showed that Singapore’s gross domestic product (GDP) in the fourth people returning to their offi ces, a signifi cant 25% 2,000 quarter of 2020 expanded by 2.1% QoQ. For proportion continued to WFH. Owing to the 20% the third quarter, QoQ growth was 9.5%. uncertainties from the pandemic, tenants are continuing to adopt a wait-and-see attitude and 1,500 15% On a YoY basis, the economy contracted by 3.8%, albeit an improvement from the looking for clarity on trends regarding future sq ft ft ('000) sq 10% 5.6% contraction in Q3/2020. Among the workplace practices before deciding on offi ce 1,000 5% services sectors, only the information & space requirements. communications, fi nance & insurance and Nevertheless, the offi ce market still saw 0% 500 professional services sectors collectively relatively signifi cant leasing deals from -5% expanded by 0.2% YoY, a reversal from technology companies. Lazada and Alibaba 0 -10% the 0.2% contraction in Q3/2020. This Group will be moving out of AXA Tower 2015 2016 2017 2018 2019 2020 was supported by stable growth in the to 5One Central, where they have taken up Source Savills Research & Consultancy information & communications and fi nance 150,000 sq ft of offi ce space. Additionally, & insurance sectors. For the whole of 2020, TikTok also signed up nearly 60,000 sq ft of Singapore’s GDP fell by 5.8%. space at Guoco Tower, which was formerly Despite uncertainties from the COVID-19 occupied by Dentsu Aegis Network. This GRAPH 2: Rental Indices of CBD Grade A Offi ces, situation, the Ministry of Manpower (MOM)’s additional demand came after TikTok had Q1/2015 to Q4/2020 preliminary estimates on the overall taken up close to 100,000 sq ft of space at One 200 unemployment rate eased for a second Raffl es Quay South Tower. It is observed that consecutive month to 3.2% in December technology companies, particularly Chinese 2020. The stabilisation in the unemployment fi rms, are expected to continue expanding 190 rate was supported by government initiatives their presence in Singapore, which is deemed as such as the Jobs Support Scheme, as well as an attractive base due to its political stability, 180 SGUnited jobs and traineeships. Nevertheless, strategic position and strong economic the unemployment rates (overall, resident fundamentals. and citizen) for 2020 were higher than in 2019 It is also separately observed that there 170 but still lower than the fi gures during SARS has been an increase in enterprise solutions Q1/2003 = 100 Q1/2003 in 2003 and the Global Financial Crisis in provided to multinational corporations by co- 160 2009. Growth sectors such as information working providers. The latter are off ering “core- communications and technology, fi nancial and-fl ex” models which provide cost savings services and professional services saw and fl exibility, especially during this period 150 improvements in employment numbers. where staff are on various work arrangements Q1 Q1 Q1 Q1 Q1 Q1 Q2 Q2 Q2 Q2 Q2 Q2 Q3 Q3 Q3 Q3 Q3 Q3 Q4 Q4 Q4 Q4 Q4 Q4 However, uncertainties in the economic while business conditions remain challenging. 2015 2016 2017 2018 2019 2020 environment, along with weak global demand More co-working providers have also engaged Source Savills Research & Consultancy will continue to exert downside pressure on the in management contracts with landlords, which labour market. serve as a win-win situation for both parties. Owing to seasonality factors, compared to While there were more strata unit the other quarters in the year, offi ce leasing transactions, whole block transactions in TABLE 1: Micro-Market Grade A Offi ce Rents and Vacancy Rates, Q4/2020 activity was generally more muted in Q4. Q4/2020 were slightly muted. In the fi nal Nevertheless, it was observed that activity quarter, only one offi ce block was transacted, MONTHLY RENT VACANCY RATE LOCATION levels in the offi ce leasing market remained which was Keppel Land’s divestment of its (S$ PER SQ FT) (%) relatively fl at on a YoY basis. Demand for offi ce 100% interest in Keppel Bay Tower, an 18-storey Marina Bay 12.39 9.4 space largely emanated from tenants that are offi ce building located near HarbourFront looking for replacement space as they need MRT station to Keppel Real Estate Investment Raffl es Place 9.67 5.7 to move out of buildings such as AXA Tower Trust (REIT). The deal was based on an agreed and Fuji Xerox Towers, which are slated for property value of S$657.2 million, inclusive of Shenton Way 8.76 12.0 redevelopment from H2/2021. On top of that, rental support of up to S$3.2 million. there was also notable activity from tenants Tanjong Pagar 8.59 9.4 with offi ce leases due for renewal. However, DEMAND AND VACANCY for the latter group of offi ce occupiers, they Based on the CBD Grade A offi ces tracked City Hall 9.90 3.3 may consider downsizing due to economic by Savills, net demand entered the positive territory of 396,000 sq ft in Q4/2020, a Orchard Road 9.05 3.2 uncertainties created by the pandemic.