Singapore offices: notice to vacate

Would you return to the office if the number of local coronavirus cases fell close to zero? Singapore, which has long kept daily cases in the single digits, shows there is no simple answer to that question.

Early terminations of prime office leases in the city-state steadily rose through the end of last year. Global financial services groups, including Citigroup, have cut back on office space. That has marked an abrupt reversal for Singapore. Before it was increasingly the preferred choice of multinational companies over Hong Kong as the region’s financial hub.

Unfortunately for local developers, the trend will persist. Falling rents already weigh on their bottom lines. Last week CapitaLand, the largest, posted a record $1.2 bn loss for 2020, its first in two decades. The company booked $1.9bn in revaluation and impairment charges on its investment properties and residential projects. Operating profit after tax and minority interests fell 27 per cent

Last year, developers had the government on their side: landlords had access to support measures including loan covenant waivers to soften the impact of late rent payments or tenants ending leases early. Share prices of the biggest local developers, including UOL Group, City Developments and CapitaLand, have reflected that boost, the last gaining more than a third in the final two months of 2020.

That situation should soon change. Precious resources will be channelled to the aviation and tourism sectors, according to a budget unveiled earlier. Property prices have limited upside in Singapore’s highly regulated market. The risk of government intervention is high should a rebound occur. Officials hardened their stance on property prices last month. They cited weak underlying economic fundamentals. The costs of construction, including labour and materials, have kept rising nonetheless.

Working from home remains the government’s suggested default. Singapore’s largest banks, including DBS, have now made that a permanent option, signalling that longer-lasting change is on the cards. Equity investors should avoid exposure to the city-state’s office space market.

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