Financial institutions which own shadow office spaces of up to 400,000 square feet are now scrambling to find replacement tenants.
In the real estate world, shadow space is loosely defined as excess office space that companies have leased. Unfortunately, due to the current global economic crisis, these companies are subletting their shadow office spaces.
A recent white paper by Colliers International, a real estate solutions provider, stated some key points. For one, it reported that shadow office space in Singapore have risen to 48 percent over the last two months. It also said that the financial industry is the biggest contributor of shadow space which accounts for 46 percent of all shadow space currently available.
“This is hardly surprising,” said Colliers. For two consecutive years in 2006 and 2007, an explosive growth was experienced by the financial services sector, and thus, embarked on expansion plans.
However, Colliers observed, “With the current economic downturn being fuelled by the collapse of the global financial markets, the reverse is now true.”
Colliers estimates that around 400,000–600,000 square feet of additional shadow space from the financial institutions will be available by 2010. This does not include the completion of new major office buildings.
“This will add to the downward pressure on rents exerted by the potential supply of 9.6 million sq ft from Q1 2009 to Q4 2012, and could keep rents depressed for a prolonged period of time and delay market recovery until after 2010,” Colliers added.
JLL’s Archibold similarly expects rents to take a hit due to the increase in shadow space. Chris Archibold is the regional director and head of markets of Jones Lang LaSalle (JLL), a financial and professional services company. He said that the sudden rise in numbers of shadow office spaces entered from February to May this year.
This shows that Grade A office rents in 2009 will decline by up to 60 percent and in 2010, by 20 percent. JLL have also observed that the rush to obtain tenants have caused landlords to offer incentives such as rent holidays. This is besides the closing rents, which are oftentimes 25–30 percent cheaper than the actual rents, just so they could secure or retain new tenants.