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While certain business sectors continue to be plagued by the economic fallout from COVID-19, many businesses are thriving and many more are beginning to see the light at the end of the tunnel.<\/p>\n\n\n\n
Since office rentals are on the down, this could present an ideal time for many businesses to negotiate hard for a good deal and sign a longer lease to lock in a rental rate they\u2019re comfortable with.<\/p>\n\n\n\n
Read Also: <\/em><\/strong>5 Types Of Businesses In Singapore That Are Set To Grow In 2021 And Beyond<\/em><\/strong><\/a><\/em><\/strong><\/p>\n\n\n\n Here are some pros and cons for businesses to do so.<\/p>\n\n\n\n While office rents are being depressed due to subdued economic activity, vaccine developments and relatively low transmission rates in Singapore is a positive sign that business may return to normal soon.<\/p>\n\n\n\n However, even if business returns to normal, work-from-home is possibly a structural shift in working habits that may be here to stay. With more employers onboard, demand for office space may gradually trickle down. In turn, this will soften office rental market.<\/p>\n\n\n\n What may seem a \u201cgood rent\u201d today, may become the norm in the near future, and may even seem high after a few years. Locking your business into a long-term rental contract may force you to pay a rent that is higher than the market rate after a while.<\/p>\n\n\n\n Taking advantage of lower rents may be a good idea. However, even if rental rates do gradually increase, you are locking yourself into a work arrangement that may be unsuitable for its requirements.<\/p>\n\n\n\n For example, your business may be thinking of rotating half its workforce to work-from-home, while the other half works from the office. This Team A-Team B rotation is not uncommon. However, by locking yourself into a long-term rental lease, you cannot easily upsize if you want to bring all employees back to the office. <\/p>\n\n\n\n Similarly, if you are locked into a longer lease with enough space for all employees, you may not be open to allowing more employees work from home as downsizing your office space is not an option. <\/p>\n\n\n\n Either ways, you lose the flexibility of changing to a different working arrangement that is more suitable, because you\u2019re locked into a long rental lease.<\/p>\n\n\n\n Read Also: <\/em><\/strong>Work-From-Home To Remain As Default Work Arrangement In Phase 3: Guidelines To Follow<\/em><\/strong><\/a><\/em><\/strong><\/p>\n\n\n\n This problem is further exacerbated if rentals continue to stay sideways or go down. Even if rentals gradually go up, landlords may not be very willing to allow a long lease, albeit one that is slightly below market rate, to be broken.<\/p>\n\n\n\n Singapore may be managing the COVID-19 pandemic well, albeit after major hiccups in the initial phase. However, the rest of the world is being plunged into second waves and deadlier variants of the COVID-19 virus.<\/p>\n\n\n\n As Singapore is a trade-reliant economy, the longer the global economy takes to recover, the longer it will take to recover.<\/p>\n\n\n\n This may keep office rentals depressed for an unknown period of time.<\/p>\n\n\n\n If your business is coping well with the current COVID-19 downturn, there\u2019s still no guarantee that it will continue to cope well the longer the pandemic persists. Eventually, your business may become affected as the slowdown hits more parts of the economy.<\/p>\n\n\n\n On the other side of the argument, if your business has been a beneficiary of the COVID-19-led downturn, there\u2019s no guarantee it will not return to pre-COVID-19 levels once vaccines are rolled out and the economy recovers.<\/p>\n\n\n\n Again, either ways, your business will not benefit from being locked into a longer rental lease \u2013 whether it is a good rate or not.<\/p>\n\n\n\n After reaching a vacancy rate of over 12% in 2Q 2020, vacancy rates have shrunk for two quarters in a row to 11.8%.<\/p>\n\n\n\n Businesses that can lock in favourable long-term rates may enjoy lower rents for years to come, as office market rentals bounce back.<\/p>\n\n\n\n In addition, the chart above also shows that available office space has shrunk for two quarters in a row \u2013 indicated less supply in the market. This suggests that supply that was supposed to hit the market in 2020 did not materialise, while available stock has also become unavailable.<\/p>\n\n\n\n According to statistics from the URA website, only about 175,000 sqm of office space received TOP status in 2020, compared to an expected 228,000 sqm. <\/p>\n\n\n\n From what can only be assumed to have been caused by COVID-19 delays, from an expected 595,000 sqm of office space that was supposed to come into the market between 2020 and 2022, only 400,000 sqm (including the 175,000 sqm already TOP in 2020) is going to become available.<\/p>\n\n\n\n Despite the worst economic contraction on record in Singapore,\u00a0more business entities were formed in 2020<\/a> (63,480) than compared to 2019 (61,573). This shows that opportunities continue to exist despite what can only be described as a bad year for business.<\/p>\n\n\n\n On top of this, fewer businesses actually shut down in 2020<\/a> (43,335) than compared to 2019 (47,504). This arguably shows that businesses had greater staying power despite the record economic slump. <\/p>\n\n\n\n Of course, government schemes and grants did help businesses to combat the adverse effects of COVID-19. While the rapidly changing business landscape may have led to the proliferation of new businesses in Singapore.<\/p>\n\n\n\n Read Also: <\/em><\/strong>5 Reasons Singapore Businesses Should Consider Hiring In 2021<\/em><\/strong><\/a><\/em><\/strong><\/p>\n\n\n\n This is further supported by positive news of US and Chinese companies such as Zoom, Twitter, Paypal, Tesla, and Alibaba, Tencent, Bytedance (owner of Tik Tok),\u00a0coming into the Singapore market<\/a>\u00a0to grow in this part of the region.\u00a0In fact, Alibaba acquired a 50% stake in AXA Tower, and along with the other owners, intend to redevelop the 50-storey office property.<\/p>\n\n\n\n At the same time, there has also been a slew of high-profile home offices being opened in Singapore. The latest being\u00a0Google’s co-founder Sergey Brin opening his family office in Singapore<\/a>. Other recently announced family offices include billionaire investor, Ray Dalio<\/a>,\u00a0billionaire founder of Dyson vacuums, James Dyson<\/a>,\u00a0billionaire behind Haidilao hot pot empire, Shu Ping<\/a>, and others.<\/p>\n\n\n\n Correspondingly, these companies will likely have to set up a physical presence. This bolsters the case for a rising demand of office space.<\/p>\n","protected":false},"excerpt":{"rendered":"Office rents in Singapore have declined 8.5% in 2020, after dipping 3.1% in 2019.\n","protected":false},"author":10,"featured_media":6167,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[364],"tags":[209,155,243,282],"yoast_head":"\nCon 1: Work-From-Home Is A Structural Shift In Working Requirements<\/strong><\/h3>\n\n\n\n
Con 2: Lose Your Flexibility To Change Your Working Arrangement <\/strong><\/h3>\n\n\n\n
Con 3: No One Knows How Long COVID-19 Will Depress The Global Economy<\/strong><\/h3>\n\n\n\n
Con 4: You Don\u2019t Know Whether Your Business May Become Affected<\/strong><\/h3>\n\n\n\n
Pro 1: Vacancy Rates Are Down \u2013 Potentially Pointing To A Recovery?<\/strong><\/h3>\n\n\n\n
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Pro 2: New Office Stock May Take Longer To Become Available<\/strong><\/h3>\n\n\n\n
Pro 3: Potentially Greater Than Expected Demand From Businesses<\/strong><\/h3>\n\n\n\n