_The tech redundancy contagion…will office space occupancy and rents fall?
Global inflation, a looming recession and geopolitical tensions continue to send retrenchment figures climbing and rightsizing of office space by occupiers. Will there be an abundance of office space returned to the market from pre-termination of leases?
According to the Ministry in its Labour Market Report 3Q2022, retrenchment was highest in the Information and Communications sector increasing from 110 employees in Q2 2022 to 460 employees being laid off in Q3 2022 or half of the total number of 890 PMET employees retrenched across all industries in Q3 2022. The consequence of reducing headcount typically translates to around 100sf of office space per employee becoming available in the market.
Source: Ministry of Manpower
The contagion of tech layoffs has hit home with the likes of SEA Holdings pre-terminating some 200,000 sf of office space at Rochester Commons in a precinct that was previously full. Others such as Amazon, Meta and Twitter have also announced headcount redundancies. In the CBD, the supply of major pre-termination space by tech firms stands at approximately 100,000sf.
On the demand side, while the net new demand for office space in 2020 and 2021 was a negative 850,000sf and negative 614,000 sf respectively, the net new demand for 2022 was a positive 473,612 sf. The Banking and Finance sector has also been hiring technology teams to drive artificial intelligence, cyber-security and blockchain initiatives. Singapore's flight to safety location amid geopolitical tensions and economic uncertainties is contributing to demand for office space. Although there will be approximately 2 million sf of new CBD office space completing this year, around 54% has been pre-leased.
For occupiers with upcoming lease expiries, the current supply of pre-termination space opportunities decompresses the market by offering flight to quality opportunities in choice buildings that were previously full. But demand for now is expected to absorb the supply with rents forecasted to grow by 3% in 2023. On this note, as pre-termination spaces are typically subsidised in rent by the outgoing occupier and in some cases, well fitted out, it is worthwhile for occupiers to go to market early if taking flight to quality is indeed a plan.
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