Hybrid work and green movement drive Singapore office market

Savills Research asserted that whilst vacancy rates are rising, office rents remain resilient amidst evolving business landscape.

Hybrid work and the green movement have emerged as powerful forces shaping Singapore’s office market, as revealed in a recent report by Savills Research. The same study showed that despite increasingly challenging business conditions, rents in the Lion City’s office market have remained steadfast, defying expectations.

Ashley Swan, head of the Commercial Department at Savills Singapore, pointed out that this resilience can be attributed to a confluence of macro trends that are transforming the landscape of commercial real estate.

In an interview he gave to the Singapore Business Review, underscores one of the key trends influencing the market: the paradigm shift towards hybrid work models. In light of this transition, businesses are reassessing their spatial requirements and seeking innovative solutions to accommodate future growth within their existing spaces, he said.

“Occupiers are dealing with a whole new way of working. The hybrid thing that we've been talking about for quite some time is one of those macro trends that is really taking an impact on the market,” Swan explained.

This new way of working is influencing occupiers’ decisions on the type of space they need and how they can adapt to accommodate future growth.

Furthermore, the green movement has gained significant traction, driving both tenant preferences and market dynamics.

“More and more companies are looking at factors such as ESG and wellness to influence their real estate decisions,” Swan said. Environmental sustainability and employee well-being have become paramount considerations for businesses, extending beyond cost factors, he added.

“It’s not just about rent and how much the budget is. It’s about whether a building provides sustainability and the amenities that our staff want as well,” he explained.

Whilst the market experiences a rise in vacancy rates, it remains buoyed by resilient rental prices. “The increase in vacancy is really a function of the increased amount of shadow space entering the market, as well as a large proportion of tenants giving up some level of space in the face of growing uncertainty and the normalization of some form of hybrid working,” said Swan.

However, this rise in vacancies has not significantly impacted landlords' rental numbers, as they maintain high occupancy rates.

Swan said the lack of future supply in the Central Business District “has contributed to the resilience of rents.” Also, the scarcity of available space in the CBD has enhanced the stability of rental prices.

Looking ahead, Swan identified potential factors that could influence rents and vacancies in the long run. “If demand drops off over a sustained period, then you can bet that the rents will go down, especially if future supply starts to go up,” Swan told the Singapore Business Review.

Conversely, an upswing in space demand or the removal of older buildings from the market could help alleviate vacancy rates.

At present, Swan anticipates the green movement to be a significant factor driving future demand, potentially pushing up rents and reducing vacancies.

As Singapore’s office market navigates through these transformative macro trends, it showcases remarkable resilience in the face of evolving work models and ESG considerations, he said.

He predicted that the ability of the market to adapt to these changes and address occupier needs will shape its trajectory moving forward.

With hybrid work and the green movement at the forefront, the expert from Savills sees Singapore’s office market continuing to prove its resilience, laying a solid foundation for the future of commercial real estate in the city-state.