OVERVIEW

With increasing economic challenges and the shedding of workers in the tech industry, the Singapore office market is now at a crossroads. Although many tenants have been impacted by the troubles afflicting their respective industries, their office leases still have a reasonable runway left, courtesy of signing long term leases when times were good. However, today, more find themselves with space which they do not need and are actively trying to lease out. This is shadow space. So, while occupancies are still healthy, shadow space is emerging.

ESTIMATING SHADOW SPACE

For the Downtown Core, in Q1/2023, the URA vacancy rate rose 0.1 percentage points to 12.1%. For Savills Grade A space in the Downtown Core, it increased 2.2 percentage points to 8.5%. If we assume that the underlying relationship between URA’s office stock (both Category 1 and Category 2) and Savills basket of Grade A buildings in the Downtown Core was maintained, the net percentage point change of 2.1% (calculated as the 2.2% increase in vacancy from Savills minus the 0.1% increase from URA’s figures), could be a proxy for shadow space. Graph 2 shows the different vacancy rates for Q1/2023 and the gap proxying shadow space.