Market dynamics in the office sector have shifted as we move towards a more tenant-favourable environment - presenting opportunities and conditions that occupiers should seek advantage of.
Since the Singapore government announced its Resilience Package -- supplementary budget measures to tackle the deepening effects of the coronavirus (COVID-19) on the economy -- we see many occupiers focusing on shorter-term profitability and simply maintaining a commercial business in 2020. To create win-win outcomes, collaboration and transparency between landlords and tenants will be key.
No apparent effect of COVID-19 on rents
Based on our latest quarterly Office report analysing the market performance in Q1 2020, the effects of COVID-19 is still not apparent. Average CBD Grade A monthly rents stayed flat quarter-on-quarter (QOQ), at S$10.09 per square foot.
Many major corporate real estate stakeholders are based in Europe and USA, and their focus have shifted to dealing with the challenges around employees’ health and wellness, staff welfare and business continuity and risk mitigation, rather than business expansion plans. We are thus starting to see some deferment of occupiers’ expansion plans into Southeast Asia.
However, as global disruption continues, key effects include increased vacancy and depressed rents, which will lead to slower demand. This would result in rents remaining fluid with the expectation of softening in the near term, thus presenting opportunities for occupiers.
Related content: Opportunities for Occupiers | Office Q1 2020 report
Adopting a new workplace strategy
As a result of the pandemic and safe distancing measures, many occupiers have progressively pivoted to remote working, having employees work from home or multiple locations. We foresee the COVID-19 outbreak will profoundly change the way people work -- even as the pandemic spread slows down or in a post-COVID-19 world -- and could fast-track the adoption of new technologies and Flex-and-Core™ strategies, and increase the demand for wellness-certified buildings.
"Contingency plans should also be developed,
which include the rationalisation of workplace density and space requirements, considering a Flex-and-Core™
strategy, decentralising or adopting a split-office business continuity strategy."
Occupiers should continue investing in technology such as seamless web conferencing and cloud storage services, and simultaneously not lose sight of reviewing their mid to long-term real estate space requirements. Amid shifting market dynamics and a move into a more tenant-favourable environment, occupiers should seek advantage from the favourable conditions and analyse their portfolios, as well as review key sites transactions and projects planned within the next 18 to 36 months.
Contingency plans should also be developed, which include the rationalisation of workplace density and space requirements, considering a Flex-and-Core™ strategy, decentralising or adopting a split-office business continuity strategy. The implications this has on the real estate markets will be more evident over a more extended period, rather than immediately.
New theme emerging: Occupier space
The adoption of collaborative technology tools will be accelerated and enhanced by occupiers. There will be increased demand for remote working, as well as increased attention placed on the significance of wellness, employees’ comfort and infrastructure. Safe distancing will be a factor in the occupier space as a key theme going forward, as business continuity strategies evolve.
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