Tech firms are flocking to Singapore, filling up CBD offices once dominated by banks

Easy access to funding for tech firms including start-ups makes city state an appealing destination
US and Chinese tech giants are capitalising on its position as a gateway to Southeast Asia’s smartphone-savvy population

Singapore

Bloomberg

Published: 3:34pm, 28 May 2021

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A new crowd is flocking to Singapore’s offices: technology companies. Steadily growing their footprint in recent years, tech behemoths are chipping away at the dominance of banks in the island-state’s central business district. Exemplifying the trend, Amazon recently leased space in Asia Square Tower 1, while ByteDance secured floors in the landmark One Raffles Quay.

That’s good news for developers and real estate investors at a time when the coronavirus pandemic is upending work practices around the world, raising questions about the future of the office. Citigroup, DBS and Mizuho are among banks that are trimming space in the Southeast Asian hub, accelerating a trend that began even before the health crisis.

The financial industry used to be the main driver of office demand in Singapore, taking up almost half of new space between 2004 and 2014. That share plunged to 26 per cent between 2015 and 2020, according to estimates by real estate consultancy firm Jones Lang LaSalle. Over the same period, the portion obtained by tech firms almost tripled to 22 per cent.

Financial firms were forced to trim workspace because of the pandemic and “that’s probably not a great thing”, said Alan Miyasaki, head of Asia real estate acquisitions at Blackstone. “But that vacancy was snapped up really quickly because there was a lot of these technology firms coming in.”

US and Chinese tech giants are capitalising on Singapore’s position as a gateway to Southeast Asia’s 650 million smartphone-savvy population.

Amazon is taking over three floors that Citigroup is giving up, while TikTok parent ByteDance is leasing three levels at One Raffles Quay. Alibaba, the parent company of the South China Morning Post, bought a 50 per cent stake in a Singapore office tower in a deal valuing the property at S$1.7 billion (US$1.3 billion).

More may follow suit, including Indonesian upstarts Gojek and Traveloka and South Korea’s Coupang, according to analysts from Savills and Knight Frank. And the hype over the region’s tech firms is mounting with Singapore-based Grab set to list in the US in a deal valuing the start-up at US$40 billion.

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“We expect tech firms to remain a key driver of office demand in the near to medium term,” said Tay Huey Ying, head of research and consultancy at JLL Singapore.

The tech invasion has so far had a limited impact on the scene in the financial district, where smartly dressed office workers remain the norm. But in one-north, a business park that’s home to firms like e-commerce giant Sea, there are signs of what’s to come if more tech firms set up bases downtown. The area is bustling with mostly younger workers dressed in T-shirts and baseball caps.

A similar trend is already playing out in the UK Technology and media companies accounted for 40 per cent of office leasing in the City of London last month, the most of any sector, according to Savills. In the past nine years, banks slashed their London footprint by about 6 million square feet – the equivalent of a dozen Gherkin skyscrapers, according to broker CBRE.

Easy access to funding for tech firms including start-ups makes Singapore an appealing destination. And to draw top global talent, the government last November launched a programme providing a two-year visa for tech entrepreneurs and investors.

The city state’s famed low taxes, ease of doing business, political stability and access to talent are also attracting foreign firms, said Mark Addy, a partner at KPMG in Singapore.

Rents in Singapore are showing signs of a recovery after slumping during the pandemic-induced recession. The office rental index climbed 3.3 per cent in the first three months, the first gain in seven quarters, according to Urban Redevelopment Authority data. A two-month lockdown contributed to an 8.5 per cent drop in 2020.

Led by demand from tech firms, rents are likely to bottom out this year before recovering in 2022, according to Calvin Yeo, head of corporate real estate at Knight Frank.

Lower office supply may also boost rents. There is limited gross new stock coming in from 2021 to 2023 and some older buildings are being taken down or slated for redevelopment, said a spokesperson for CapitaLand Integrated Commercial Trust, which owns six office buildings in the financial district. Office supply will fall even after most of these redevelopments finish, and so rents should improve over time, the spokesperson said.

That bodes well for investors like Blackstone, which is looking to invest in more Singapore properties to capitalise on rising demand from the tech sector.

Developers aren’t panicking, either. Banks have been adjusting their footprints since the 2008 financial crisis, and as long as Singapore remains a viable business destination there will be demand for offices, the spokesperson for CapitaLand Integrated Commercial Trust said.

Although bricks-and-mortar banking may be in retreat, fintech is a booming corner of the industry. Singapore’s major banks have piled billions of dollars in the past decade into improving financial technology and digitisation while shrinking their physical branches. The financial sector is expected to add about 6,500 jobs this year – many in tech roles – according to the Monetary Authority of Singapore.

A boom in private banking is also likely to keep banks in the city centre, with firms like Nomura seeking to capitalise on Singapore’s growing prominence as a wealth hub. Beijing’s tightening grip on Hong Kong also strengthens Singapore’s appeal for lenders.

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“Singapore in contrast to the political unrest in Hong Kong is an oasis of calm,” said Justin Tang, head of Asian research at United First Partners.

Banks will just need to share their playground. “The pandemic has accelerated the proliferation of technology into our everyday lives,” Tang said. “The rise of technology firms is inexorable.”