Economic and political uncertainty have been presenting headwinds to office markets, with rental declines evident and forecasted in some key markets pre the outbreak. This current event is likely to add to risks, at least in the short term, as businesses delay real estate decisions and enhance emphasis on managing costs and business continuity plans.
In Mainland China, uncertainty will cause occupiers to be more cautious and adopt more conservative leasing strategies. The impact will depend on the length of the outbreak. Once the outbreak is fully contained, office demand is expected to rebound. In the long term, office markets will be supported by the continued expansion of the technology industry and financial liberalization.
We had expected businesses to delay real estate decisions due to social events in Hong Kong. Given the outbreak, these decisions will likely be further dragged out as companies assess the outbreak’s impact on their business prospects. If we look back at 2003, Hong Kong office rents surged considerably from historic lows after SARS, alongside with an economic recovery. We expect a repeat is unlikely as Hong Kong office rents just started to come off historic highs after a prolonged upcycle.
Inevitability this situation has the potential to weigh on business sentiment if prolonged; however, at this moment we expect office leasing demand in Japan to hold up relatively well. Some corporates may ask employees to work from home or adopt satellite offices. This could support more flexible office demand (not necessarily coworking space), particularly to avoid traffic during the Summer Olympics in Tokyo.
This situation may weigh on sentiment across most industries in Singapore. As a result, softer business sentiment could lead some firms to hold back on relocation and expansion plans.