Tech layoffs: How badly will the office market be hit?
By Cecilia Chow
/ EdgeProp Singapore |
Google had taken up 344,000 sq ft space at ATP 3 ½ years ago for future expansion, as the firm’s Asia Pacific headquarters at the neighbouring Mapletree Business City II was full (Photo: Samuel Isaac Chua/EdgeProp Singapore)
SINGAPORE (EDGEPROP) - At Alexandra Technopark (ATP) on Alexandra Road, Google Asia Pacific signed on as a new tenant in June 2019. It is already midway through the five-year lease term that started in 1Q2020. The space was fitted-out, but Google staff has not moved in. When contacted, Google says it has no new updates to share on the status for now.
Read also: Winning the Great Renegotiation
Google took up the space at ATP 3½ years ago for future expansion, as the firm’s Asia Pacific headquarters at the neighbouring Mapletree Business City II (MBC II) was full. The 344,000 sq ft that Google leased at ATP amounts to 33% of the total net lettable area (NLA) in the high-specification, campus-style business park with over 1.038 million sq ft.
ATP’s landlord, Frasers Logistics and Commercial Trust (FLCT), declined to comment. In FLCT’s 3Q2022 financial results, ATP’s committed occupancy rate is intact at 93.4%.
Google Asia Pacific’s staff of 3,000 are at the headquarters in MBC II, where they have been since November 2016. The space occupied by Google spans two entire blocks, amounting to 680,000 sq ft or 57% of overall NLA at MBC II. Google is the anchor tenant there. Its landlord, Mapletree Commercial Trust, purchased MBC II for $1.55 billion in September 2019.
“Given the amount of space that tech firms occupy, they have a significant impact on supply within the office sector,” says Douglas Dunkerley, director of office leasing specialists Corporate Locations.
Google Asia Pacific’s staff of 3,000 remain in Mapletree Business City II, where they have been since November 2016 (Photo: Samuel Isaac Chua/EdgeProp Singapore)
‘Tech sector suffering’
The number of tech firms announcing large-scale layoffs has sent a chill across the office sector. Fears are that they could derail the post-pandemic recovery.
Meta, the parent company of Facebook, will shed 11,000 staff worldwide (13% of its headcount). Amazon is thinning its global headcount by 20,000. Elon Musk, CEO of Twitter, has reduced the company’s headcount by 66%. Microsoft, Stripe and Salesforce have axed 1,000 staff, respectively, while Cisco laid off 4,100 globally. Hewlett-Packard is offloading 4,000 to 6,000 employees by 2025. Alphabet, Google’s parent company, is looking to gradually retrench 10,000 “poor performers” via a new performance ranking system. That’s 5.3% of its 186,779 staff worldwide.
According to Layoffs.fyi, a layoffs tracker, 144,554 employees globally have been let go from 916 tech companies this year, as of Dec 6, 2022. From July to mid-November, the number of Singapore resident workers laid off from the tech sector totalled 1,270, Manpower Minister Tan See Leng told Parliament on Nov 28. Eight in 10 were in non-tech-related roles, such as sales, marketing and corporate functions.
“The tech sector is going through a rough patch right now,” says Marcus Loo, CEO of Savills Singapore. “Tech firms and start-ups may be giving up or subletting their space as the cost of borrowing has increased significantly. Investors are also more prudent about how they deploy their funds.” He expects more shadow space to emerge in the coming months.
David McKellar, co-head of office services, Singapore, CBRE, is of a similar view. He foresees some office and business park space will become available due to the large-scale staff reductions in the tech sector. “This may, however, be a brief moment in time as Singapore remains a regional tech hub,” he says, “and we expect the sector to continue to grow over time.”
IOI Central Boulevard Towers is 30% pre-leased ahead of its completion scheduled for 3Q2023 (Picture: IOI Properties)
‘Two narratives’
Corporate Locations’ Dunkerley sees “two narratives” being played out in the tech sector.
On the one hand, Amazon has committed to leasing 370,000 sq ft or 11 floors at IOI Central Boulevard Towers, which is scheduled to open in 3Q2023. Amazon already occupies 100,000 sq ft of prime office space in Asia Square, another 45,000 sq ft in One George Street and 80,000 sq ft in Capital Square, according to Dunkerley. The tech giant may consolidate its real estate footprint at IOI Central Boulevard Towers when it moves in.
Meta, Facebook’s parent company, will be leasing substantial office space at IOI Central Boulevard Towers, too, says Dunkerley.
Beijing-based ByteDance, the parent company of TikTok, is taking up a further 80,000 sq ft in Capital Tower, space vacated by JP Morgan. ByteDance already occupies substantial office space in One Raffles Quay and Guoco Tower, Dunkerley points out.
On the flip side, Sea, the parent company of e-commerce firm Shopee, has reportedly given up 200,000 sq ft of Grade-A office space at Rochester Commons. The newly completed, mixed-use development by CapitaLand Development includes a 135-room hotel managed by The Ascott and a 54,000 sq ft shared executive learning centre. Sea is now looking for a replacement tenant for the office space. The firm laid off more than 7,000 employees, or around 10% of its workforce, over the past six months.
According to sources, American video-on-demand streaming service, Netflix, has given up one of its two floors at Marina One West Tower. The space offered for sublease is said to be about 30,000 sq ft.
Shopee backs out of 200,000 sq ft of space at the new Rochester Commons (Photo: CapitaLand website)
Activity slows, shadow space emerging
Grade-A office rents in the CBD Core grew by 7.4% in the first nine months of 2022, says Tricia Song, CBRE head of research, Southeast Asia. With a firm “return-to-office demand”, Core CBD (Grade-A) rents are expected to clock a full-year growth of 8% to 9% in 2022. “This will exceed the 3.8% rental growth registered in 2021,” she adds.
On the ground, activity has slowed from six months ago. Savills’ Loo is anticipating “a correction” in office rents going into 2023.
CBRE’s Song concurs. She expects shadow space to increase as some tech firms offer up space on an “early surrender basis”. “In the near term, rising global macroeconomic headwinds and a tech sector consolidation could weigh on demand, and soften rental growth in 2023,” she says.
CBRE has therefore trimmed its 2023 forecast for CBD Core Grade-A rents to about 1% growth, down from 4.3% previously.
Savills’ Loo sees the current weakening as “just a blip”. The extent of this blip, however, is anyone’s guess, as macro factors come into play, he concedes. “In the long term, new industries will come in to backfill the spaces that have been given up,” he adds.
“The question is, when optimism about the economy will return,” Loo continues. “That does not appear to be in the near term.” However, Singapore remains focused on growing the tech sector, he notes. “The Singapore government has been very far-sighted in terms of getting key players to increase their presence.”
Toyota Tsusho, the trading arm of Toyota Group, relocated from Parkview Square to lease a floor at OUE Downtown 2 (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Upgrading, rightsizing
Rightsizing persists due to “a confluence of factors that will temper office demand — the tech sector fallout, crypto collapse and wave of hybrid working, both in the private and public sectors”, says Savills’ Loo.
There have been a spate of office moves, with a mix of upgrading and rightsizing. Toyota Tsusho, the trading arm of Toyota Group, relocated from Parkview Square to lease a floor at OUE Downtown 2. Facility and building management company Sika Asia Pacific Management is relocating from Robinson Point to a whole floor in One Raffles Place Tower 1, according to Corporate Locations.
Burger King Asia Pacific is moving its regional headquarters from UIC Building to Manulife Tower. Alcoholic beverage company Diageo is rightsizing from One George Street to take up half a floor at Ocean Financial Centre. The other half-floor is now occupied by global media and tech company NBC Universal, which rightsized from International Plaza.
“Many companies rightsize come lease renewal,” says Dunkerley. “Some consolidate two offices into one; others upgrade but take smaller and more efficient spaces; while still others work on a hybrid solution.”
This year, new supply in the CBD comes from two buildings. One is the completed redevelopment of Hub Synergy Point, a 27-storey tower with 118,000 sq ft located at the corner of Anson Road and Enggor Street. It opened in August. The other is the upcoming Guoco Midtown, a 30-storey office tower with 770,000 sq ft of premium office space which is scheduled to be completed by the end of 2022.
Guoco Midtown has received strong interest from companies and has achieved 75% pre-commitment take-up of its office space to date, says GuocoLand. These include several deals in advanced stages of negotiation, according to the developer. Tenants are said to be diverse, ranging from technology firms to consumer brands, banking and finance, reinsurance, energy, maritime and professional services.
The 30-storey Guoco Midtown office tower is over 75% pre-leased ahead of its scheduled to complete by end of this year (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Low supply pipeline
Looking at previous business cycles, giving up some office space is “not uncommon in a downturn, especially when those companies were growing at a rapid pace before”, says Chris Archibold, country head, JLL Singapore.
“In the Singapore context, future supply is relatively low, so the impact should be somewhat reduced,” adds Archibold.
In 2023, three developments are in the pipeline for completion. Only one of them, IOI Central Boulevard Towers, is a Grade-A office development in the CBD. The 1.26 million sq ft space at IOI Central Boulevard Towers is about 30% pre-leased, says CBRE’s McKellar.
The other two office developments are outside the CBD. One of them is the office component of One Holland Village mixed-use development with 80,730 sq ft floor space. The other is Surbana Jurong’s new headquarters with about 741,801 sq ft of office space at Jurong Innovation District.
2024 will see the completion of the redeveloped Keppel Towers (618,000 sq ft), 333 North Bridge Road (40,000 sq ft) and Labrador Tower (686,000 sq ft). Certis Paya Lebar is targeted for completion in 4Q2022 and will yield about 220,000 sq ft of Grade-A office space. Shaw Tower (435,000 sq ft) is flying solo in 2025.
“Including the completions in 2022 to 2025, the supply pipeline is equivalent to an annual average of 1.23 million sq ft,” says CBRE’s Song. This is 14.8% lower than the historical 10-year annual gross completion of 1.45 million sq ft, she adds.
She expects rents in the prime office space in the CBD to be propped up by tight vacancy rates, below-historical average new supply over the next three years and solid market fundamentals.
Rents to stay firm
Premium Grade-A office buildings have seen monthly asking rents rise to the $14 to $15 psf range, according to Corporate Locations. Dunkerley expects older buildings to struggle to find new tenants. “Occupiers are becoming more discerning about their office premises to recruit staff,” he says.
“Not only are base rents expected to stay firm, but service charges will also increase,” says Dunkerley. The most affected tenants are those who have not seen an adjustment in service charges in a long time. Tenants should also factor in an impending increase in Goods and Service Tax, to 8% from Jan 1, 2023, and 9% effective from Jan 1, 2024, he adds.
Limited new office supply over the next three years will support rental growth, although it will be at a more modest pace, cautions Dunkerley.
Savills’ Loo says: “Once the dust settles, Singapore remains a very attractive place for businesses to grow and to flourish.”
Check out the latest listings near Alexandra Technopark, Mapletree business city, IOI Central Boulevard Towers, Guoco Midtown, Rochester Commons, OUE Downtown 2
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