Technology, co-working led leasing demand in 2017, Hub Projects – THE BUSINESS TIMES
Thu, Mar 29, 2018 – 5:50 AM
THE office market ended 2017 on a high note: Island-wide office net absorption as tracked by CBRE Research was 783,621 sq ft in Q4 2017, contributing significantly to a full-year net absorption figure of 2.1 million sq ft.
While this was on the back of a large amount of new supply, this amount was much stronger than earlier anticipated and helped support an earlier-than-expected recovery in office rentals.
However, whether this healthy absorption figure was just a one-off or portends a period of strong demand over the foreseeable future remains a question mark. As such, an examination of what contributed to the absorption figure is key to understanding the quality and sustainability of demand.
Net new demand accounted for half of leasing activity in 2017
As a proxy, CBRE Research tracked and analysed a total of 2.33 million sq ft of new leasing transactions in 2017 that were more than 10,000 sq ft in space requirements.
We found that new setups were relatively few in number, contributing just 5 per cent. This was likely due to the nature of new business formations where few firms were willing to take up more than 10,000 sq ft of office space when entering a new market or setting up for the first time.
On a promising note, close to 30 per cent of leasing transactions in 2017 was supported by expansionary requirements, be it from increasing size of current premises or establishing new business locations in the island.
Relocations unsurprisingly dominated overall leasing activity, accounting for approximately 60 per cent. What was notable about total relocations was that almost one-third of relocation space was due to an increase in size requirements.
Combining this with new setups and expansion, this would indicate that about half of leasing activity in 2017 or 1.15 million sq ft was net new demand.
Technology and co-working sectors lead the way
While these results are encouraging, it is important to note that this growth in deal volume was not broad-based and was predominantly driven by a few select sectors. Net new demand was led by two sectors: real estate, and information and communications technology (ICT).
In the real estate sector, growth was driven largely by the co-working market which witnessed a flurry of expansions by operators eager to expand market share. For the technology sector, those operating in the social media, transport and fintech sectors were the most active in securing and enquiring for space.
At a broader economic level, the changing profile of occupier demand is not surprising and is a reflection of the way Singapore’s economy is evolving.
The digitisation of Singapore’s economy is slowly taking root, with firms from most industries affected as they slowly adapt and incorporate technological enhancements to work processes.
This has led to a boom in demand for technology services and resultantly the growth of the technology sector in Singapore. At the same time, the startup scene in Singapore has grown increasingly vibrant.
With the government’s efforts to nurture the SME community, co-working operators are aggressively competing to capitalise on this growing segment of the market.
Can traditional demand drivers provide a boost?
Technology and co-working may have been the demand drivers recently, but the sustainability of occupier demand remains a concern.
There is need for a more broad-based improvement in office demand sectors to underpin a more robust recovery cycle. A closer examination of traditional demand drivers shows a generally stable outlook with potential for upside.
The banking sector looks to have turned a corner after a period of slow growth. Financial institutions are currently reporting stronger performances and higher profitability. In the meantime, the oil and gas industry has stabilised on the back of recovering oil prices and improving demand.
Continuing global economic growth and pro-business policies by the US Administration are all positive factors that support a more optimistic outlook for these sectors.
The legal sector, however, is still grappling with an increasingly-competitive market and a complex operating environment alongside technological innovation.
With cost-containment initiatives still a key priority, prospects for the legal sector look relatively muted in the near term as the sector adapts to the new challenges.
There is reason to believe that there is potential for a return to expansion mode for a wider range of industries, which will lend support to a much stronger office recovery story. Asian corporations are rising in prominence and rapidly expanding their presence in the region.
They currently comprise 40 per cent of the Fortune Global 500 in 2017, compared to just 23 per cent in 2001. At the same time, Asia is home to a growing number of unicorn startups, which is emerging as a steady source of office leasing demand.
At a domestic level, improving economic fundamentals have been encouraging, with growth broadening from the manufacturing to the services sectors.
The government has also continually reaffirmed its continued focus on the digitisation and transformation of Singapore’s industries, with the Industry Transformation Maps and Smart Nation Initiative currently taking root.
The successful implementation of these plans will help pave the way for more sustainable growth for both traditional and emerging industries.
- Mr Sim is head of Singapore and South-east Asia, while Mr Chua is assistant manager at CBRE Research
Warning: array_key_exists() expects parameter 2 to be array, null given in /home/coinbloc/public_html/wp-content/plugins/virtual_coin_widgets/includes/data.php on line 34
|CryptoCurrency||USD||Change 1h||Change 24h||Change 7d|
|---||0.00 %||0.00 %|