Singapore is the biggest beneficiary of the post-pandemic trend of US employees abandoning in-office work. Will the shift to Southeast Asia continue?
General Electric announced in April that it was selling the New York property where Jack Welch once held forth to his acolytes at the company’s fabled management academy, for $22 million. The same month, Apple went public with plans for a $250 million expansion of its Singapore regional hub, adding that it was considering increasing its manufacturing presence in other parts of Southeast Asia.
The headline announcements appeared to reflect a larger shift in how and where major corporations are investing in office space—and where they are not.
After a couple of decades when tech companies drove office expansion in large US cities, they are cutting back. According to CBRE, the commercial real estate firm, more office space with a major tech presence is available for sublease than at any time in the past 10 years: 168.4 million square feet (15.6 million square meters), helping drive the national office vacancy rate to a record 19.8%. The Federal Reserve Bank of Kansas City reported in March that average weekly office attendance in large metropolitan areas—measured by employee badge swipes—had still only recovered to about half its pre-pandemic level.
Half a world away, the trend is quite different. In March, global real estate consultant Knight Frank projected that the offshoring market in Asia-Pacific will more than double by 2032, fueling an additional 4.7 million to 5 million square meters of office space demand annually over the next three years. Owing partly to stricter economic rules for foreign companies in China and Hong Kong and partly to its own efforts to attract major companies, Singapore has benefited greatly from the trend and is now the regional headquarters for major names including Microsoft, Google, FedEx, Rolls-Royce, Mead Johnson, TikTok, and Shein. Office vacancy rates there were less than 5% early this year, according to Bloomberg Intelligence.
Commercial real estate trends “are driven by the structure of the economies and of the real estate markets themselves,” says Ryan Luby, a senior expert and associate partner at McKinsey & Co. And while there is some evidence that the corporate sector is expanding faster in Southeast Asia’s major cities than in their US counterparts, this should not be overstated, cautions Richard Barkham, chief global economist at CBRE.
The office market in Southeast Asia has weathered the Covid pandemic and the shift to remote and hybrid work structures more successfully than the US, Luby argues, in part because of the nature of its urban areas. Downtowns in cities like Singapore, Kuala Lumpur, and Manila tend to be mixed-use rather than dominated by corporate tenants, and the residents more densely concentrated, in contrast to America’s sprawling cities with their large suburbs and typically long commute times. That, coupled with efficient public transit systems, makes daily travel for on-site work less time consuming and expensive, notes Patrick Wong, Asia-Pacific real estate analyst at Bloomberg Intelligence.
“Southeast Asia will see more remote work in the next 10 years,” Luby says, “but it will not ever see the level of San Francisco”—and much of this will be hybrid rather than purely remote work, with employees spending at least some time in the corporate office.
Barkham notes that the average dwelling size in Asia-Pacific cities, from Tokyo to Jakarta, is smaller, making at-home work for two-earner families less practical: a fact that has helped keep remote work to a minimum, even in the face of Covid. Businesses occupying US office towers, as well, are heavily concentrated in technology, finance, business and professional services: the sectors that are most amenable to remote work. Increasingly, this is the case in Asia-Pacific cities as well, but the transition from manufacturing-based economies to services is still in process there.
Aside from the impact of remote work, other economic factors favor faster growth in Southeast Asia’s cities, experts say.
Singapore began to see more big companies building up their presence there after about 2015, when higher labor costs started in China, Luby notes, and the subsequent trade and political tensions have only accelerated the shift, which continues. As for US companies expanding their presence in the region, Barkham notes that they are under pressure to reduce costs, and faster communications make it easier to send even high-level functions to locations in Asia. India is especially well-positioned to benefit from these factors, since it has a highly educated workforce with high English proficiency and a legal system that features strong property rights, but other countries such as Singapore, Malaysia, and the Philippines will also benefit. A growing middle class, meanwhile, gives the entire region an expanding consumer market for financial services that US companies want to connect with more directly.
Despite the battering Hong Kong’s image has taken from Beijing’s crackdown on its quasi-autonomous status, it shares some of the same advantages as Singapore. These include English language skills, common law-based legal system, and low taxes, Wong notes. And while its office market is slacker than Singapore’s, it stands to gain in coming years, he says, citing China’s continuing need for funding via Hong Kong’s vast capital markets and an inflow of wealth from the mainland that both the local government and Beijing have fostered, helping to support office demand. While Singapore has a claim to be the safer location, Wong says, Hong Kong is closer, and moving money there does not run up against the tighter regulations Singapore recently put in place to combat money laundering.
That said, it is easy to read too much into present trends, Luby cautions.
The biggest factor keeping the US office market from recovering, he says, may not be the lure of remote work, but a housing shortage that amounts to some 4 million to 5 million residential units nationwide and hits residents of major urban areas especially hard. Canadian investment manager Brookfield, in a February report, argued that the growing issue for New York, in particular, is supply. “There is an excess of dated, functionally obsolete office buildings and an undersupply of offices that satisfy tenants’ changing needs,” it noted.
But the New York region remains the largest and deepest talent pool in the world, which continues to attract workers despite a high cost of living, Luby adds, and developers and management companies will retrofit older buildings to add amenities that attract employers even as they develop new ones. Nor are the days of rapid expansion guaranteed to continue in Southeast Asia, he argues; while it has increased its share of global production, the region is experiencing a birthrate decline similar to China. Whereas recently it was “galloping, it is now slowing to a walk,” he says.
