Commentary on Political Economy

Wednesday 1 May 2024



Singapore Offices Await a New Wave of Tenants

An eight-year cycle in which the tech industry provided demand for working spaces is coming to an end. 

New tenants wanted.
New tenants wanted. Photographer: Ore Huiying/Bloomberg


After beating back pandemic blues, elevated interest rates, and a worldwide shift toward work from home, Singapore’s office market is finally looking jaded. There’s no crisis around the corner, just a whole lot of uncertainty. An eight-year cycle in which the tech industry provided demand for working spaces may be coming to an end. Landlords simply don’t know who their next tenants will be.

The nervousness is starting to show up in deals, vacancies and future projections:

Exhibit A: PGIM Real Estate’s efforts to sell the twin towers at 78 Shenton Way in the central business district have stalled as prospective buyers bid below what the real estate manager bought the property for, Bloomberg News reported last month.

Exhibit B: CapitaLand Integrated Commercial Trust, the city’s largest publicly traded landlord, reported committed office occupancy rate of 97.5% in March, a 1 percentage point drop from December.

Exhibit C: The Southeast Asian city-state is expected to add a net 0.8 million square feet of downtown workspace annually between 2024 and 2026, or 60% more than the previous 10-year average, according to CBRE Research. It’s unclear if the additional supply will find adequate demand to sustain 12 straight quarters of rental growth.

Singapore is a global financial center. But between 2015 and 2022, it’s the technology industry that showed great enthusiasm for renting offices in the city. The newly completed IOI Central Boulevard Towers in Marina Bay — with more than 1.2 million square feet of net lettable area — is backed by a hefty take-up commitment from Inc.

Still, with US commercial real estate in a slow-motion crisis because of higher interest rates and tech firms laying off more than 500,000 workers globally since the start of 2022, the lucky streak for Singapore landlords is now over. This year won’t be all that bad as major leases will start coming up for renewal only toward the end of 2024, according to Savills Research, which is predicting a “mild” 2%-3% drop in rents.

It’s the longer-term outlook that’s causing some anxiety. Over the next 10 to 15 years, Singapore will have completed its largest business district outside of the central area as it seeks to spread out more evenly by blurring the boundaries between where people go to work and where they live, shop and dine. In March, a consortium of three of the island’s largest developers — backed by two Japanese partners — put in two separate bids for the mega project. The plan includes at least 146,000 square meters (1.6 million square feet) of office space.

A new wave of tenants is badly needed. Specifically, the current global hype for generative artificial intelligence must translate into more start-ups choosing Singapore. A big win here is an imperative because banking and technology — the two drivers of the city’s commercial real-estate apart from tourism and shopping — will also be among the most exposed to generative AI. As these sectors replace low-end human work with large language models and machine intelligence, they may not need as much physical space as they occupy now.

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Singapore’s data centers will undoubtedly see growth, but will the office market expand or contract? A lot will depend on how the city fares in regional competition. Historically, that has meant keeping an eye on Hong Kong’s taxes, business costs and openness to foreign talent. That won’t be enough this time around, though. Not with the ongoing economic contest between Saudi Arabia and the United Arab Emirates.

The aggressive Saudi bid to diversify away from oil is putting pressure on the UAE, which is making its own determined bid to snag promising AI ventures for Abu Dhabi. Navigating increasingly acrimonious US-China relations won’t be the only challenge awaiting Lawrence Wong, as he takes over as Singapore’s prime minister May 15. Joining the race for tech investment with “MBS” and “MBZ” — Saudi Crown Prince Mohammed bin Salman and the UAE President Mohammed Bin Zayed Al Nahyan — will also be crucial. In the long run, it may be the only way office landlords in the city-state can hold on to their bargaining power.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.
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