Struggle to Fill New Tower Shows Singapore Office Market Woes

(Bloomberg) -- Three years ago, it was touted as a development that would rejuvenate Singapore’s central business district. But an upcoming building in the city-state could have fallen victim to the pandemic, which has upended the office market as work from home remains a long-term arrangement for some companies.

CapitaSpring, a 51-floor integrated development that will also house Singapore’s highest urban farm, has only managed to secure about 38% out of 647,000 square feet (62,600 square meters) of net lettable area. That’s low considering it’s 75% completed. Typically at that stage, buildings would have leased out more than half of their space.

And in another sign that the health crisis has hit the commercial property sector, CapitaSpring’s completion has been pushed back to the second half of the year from the first half. It’s the only premium Grade A office development in the city’s central business district that’s scheduled to finish this year.

CapitaLand Ltd., which jointly owns the building with CapitaLand Integrated Commercial Trust and Mitsubishi Estate Co., said that after including leases which are in advanced negotiations, the development is on track to get more than 60% commitments by completion. To date, committed office tenants are mainly from the legal as well as the banking and financial services sectors, CapitaLand said in a statement on Tuesday. In 2018, JPMorgan Chase & Co. became its first anchor office tenant and will take up seven floors.

The setback reflects how the pandemic has battered Singapore’s commercial property sector. While tech behemoths are expanding, banks such as Citigroup Inc. and Mizuho Financial Group Inc. are cutting back office space in part due to the success of working from home, with such arrangements potentially to be long term.

Rents Fall

Prime grade office rents in the Raffles Place and Marina Bay precincts contracted about 10% in 2020, according to Knight Frank. Early termination of spaces continued to rise in the fourth quarter of last year to an estimated 330,000 square feet from 260,000 square feet in the third quarter.

And the prospects aren’t bright this year. Knight Frank expects office rents in the city-state to decline by around 5% in 2021 before bottoming out and recovering next year, it said in a quarterly report published on Monday. That’s not taking into account if new virus strains could result in subsequent lockdowns. The property consultancy firm foresees lower net new demand for office space given that some companies have adopted a rotational remote working approach.

“The rethinking of traditional office space usage in an age of flexible work arrangements, and the casualties of the Covid-19 pandemic as the government withdraws business support measures, will likely add to contractionary pressures for office space,” Knight Frank said in its report.

DBS Group Holdings Ltd. and United Overseas Bank Ltd., two of Singapore’s largest banks, have allowed employees to work remotely on a permanent basis, part of the major work-culture changes triggered by the pandemic.

In contrast to the office sector, Singapore’s residential housing market is holding up. Home sales rose the most in six months in December, signaling the market has weathered the recession. Authorities may be considering another round of measures to cool residential prices, according to market analysts.