Technology companies play catch-up in Singapore real estate scene

By Christine Li,

Goh Jia Ling

/ NASDAQ, Cushman & Wakefield Research, The Edge Property |

May 22, 2015 12:00 PM SGT

Over the past few months, leasing activities of international technology giants into trophy office buildings have been grabbing the headlines as these companies seek to expand their footprints in the region.

Currently, close to 10 large cap technology companies, each with a market capitalisation value of more than US$ 10 billion ($13.3 billion), have their headquarters set up in Singapore. Each of them occupies at least 20,000 square feet of Grade-A office space in the city. Recent announcements in 1Q2015 include Apple’s securing 35,000 square feet of space in CapitaGreen, a 40 storey Grade-A development that received Temporary Occupation Permit last December, and social media giant Facebook’s move into a 70,000 sq ft office space in South Beach Tower later this year.

Examples of large-cap tech companies with headquarters in Singapore

Source: NASDAQ, Cushman & Wakefield Research

At this juncture, Singapore appears to be the leading destination for the Asian headquarters of many multi-national technology companies. Chinese e-commerce giant Alibaba once cited Singapore as its preferred Asian hub location, pointing to the city state’s proximity to a swelling middle-income population and a sophisticated base of consumers embracing high-tech products in key Asian growth markets. Other compelling factors often cited by these MNCs include Singapore’s high network readiness, business-friendly environment, established infrastructure, high standard of living and easy access to a large talent pool.

Indeed, the growing presence of the tech sector has been more evident in Singapore, as tech companies are seen moving into sleek Grade-A office buildings downtown in droves. Based on research conducted by Cushman & Wakefield, new demand from finance industry, which has been the traditional office occupier, has shrunk from a market share of 41% in 2013 to 31% in 2014; whereas tech companies accounted for about 15% of office demand in 2014, up from 6% in 2013. In absolute terms, this translates to 300,000 square feet of net office demand in 2014, doubling that in 2013. In fact, Google’s expansion has seen its office space take-up increasing at 53% y-o-y on average.

Singapore office space: Increased presence of tech companies

Source: Cushman & Wakefield Research

It is a common misconception that almost all tech companies would immediately take up Grade A office space upon their entry in the Republic. On the contrary, most of them including NASDAQ darlings actually have a rather humble start. For instance, Apple first headquartered its R&D, sales and marketing operations in Singapore in a built-to-suit facility in Ang Mo Kio. It subsequently expanded into UE BizHub Central next door in 2012. Similarly, eBay and Paypal jointly housed their headquarters in a boutique building at Neil Road prior to its relocation to Suntec Tower 5 and Millenia Tower.

If we take a look at the growth path of technology companies, serviced offices offer a practical solution for the pioneer batch of most new office set-ups, owing to cost optimization and the range of facilities offered locally and regionally. In September 2013, Alibaba opened its new corporate office at a serviced office in Equity Plaza after its official entry into Singapore. Likewise, privately owned Chinese electronics company Xiaomi Inc chose to house their initial office set-up at a serviced office centre for 3 months before moving into a converted shophouse.

It has also been observed that technology companies have a preference for smaller, boutique developments or buildings with unique character in the central area, especially among companies specializing in software development, the Internet and social media that are in early stages of growth.

On the other hand, incubation centres seem to be a more popular option for home-grown start-ups. The JTC LaunchPad @ one-north or affectionately known as Block 71, is currently a vibrant start-up community housing entrepreneurs, startup incubators and investors in Singapore. While still far from spawning the next Silicon Valley, JTC LaunchPad @ one-north has received extremely receptive response. The government has planned for the expansion of the existing complex, with three more buildings in the pipeline to accommodate 750 startups by 2017, an increase from 500 start-ups in 2014 and 250 start-ups since its launch in 2011.

Subsequent phases of expansion could see techn companies shifting into trophy buildings in the CBD. Driven by competition for talent, limited options in the market as well as zoning restrictions on business parks and high-tech industrial sites, a number of technology companies have taken up large chunks of space in prime Grade-A buildings in the Downtown Core. This is evidenced by Facebook’s plans of relocating to South Beach Tower from its previous premise at 158 Cecil Street.

Growth path of technology companies in Singapore

Source: Cushman & Wakefield

Beyond a certain scale, tech companies may be pressured to source for lower-cost real estate solutions, driving the shift towards business parks and high-tech industrial sites in the suburbs. Even though the suburbanization trend was traditionally more prevalent among companies which specialize in hardware and peripherals, the market has recently witnessed tech companies exploring relocation options outside the CBD, especially among mature tech companies with relatively large critical manpower in their Singapore operations. For example, IBM moved to Changi Business Park in 2001 and the world’s largest data storage systems provider EMC Corp and US MNC Cisco Systems consolidated their operations in Changi Business Park.

This trend is expected to continue, with tech heavyweights Google and Microsoft exploring relocation options in Mapletree Business City II, a new business park slated to enter the market in mid-2016. Mature tech companies that can meet the guideline, which stipulates that at least 60% of the leased area goes towards approved uses such as high-tech manufacturing, R&D, product design/development, data processing and e-business, will have tremendous incentive to relocate in good quality buildings that have sizeable floor plates and relatively high transport connectivity. Significant rental savings from moving into a suburban location will also help to offset increasing labour costs and pricing pressures. Given the emergence of regional centres such as Paya Lebar and Jurong East, demand for quality office buildings in decentralised locations seems promising as Singapore’s tech scene continues to flourish in this new age economy.

This article appeared in The Edge Property Pullout of Issue 677 (May 18) of The Edge Singapore.

Christine Li is director and Goh Jia Ling is manager of research at Cushman & Wakefield.

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