SINGAPORE (BLOOMBERG) – Singapore’s battered property firms are hitting a snag in their recovery after rising coronavirus infections led to an extension of remote work in the city-state.

Shares of commercial developers and real estate investment trusts (Reits) have fallen since authorities announced last month that working from home will remain the default arrangement. The government is trying to minimize the risk of transmission at offices after some cases in the workplace led to community clusters.

The move adds to headwinds for developers and Reits, amid questions over what the future holds for offices worldwide even after the pandemic. It will be harder to lease out vacancies and there will be pressure to lower rents if the work-from-home arrangement persists, said Terence Chua, an analyst at Phillip Securities Research Pte.

“The new default will cast a pall over occupancies going forward,” said Justin Tang, the head of Asian research at United First Partners in Singapore.

Mapletree Commercial Trust, which owns Singapore’s largest mall VivoCity and a nearby office building in its portfolio, has fallen 3.2 per cent since the Jan 22 announcement. Far East Hospitality Trust has dropped 3.3 per cent while Frasers Hospitality Trust has slid 6.6 per cent.

Market sentiment has been further dampened by Singapore’s two largest listed developers – CapitaLand and City Developments Ltd – announcing they expect to report full-year losses. Both stocks fell more than 3 per cent last week.

A Mapletree spokesperson said the company is monitoring the situation and declined to comment further. A representative for Far East Hospitality Trust said that work-from-home arrangements have a greater impact on the office and retail sectors than hospitality, “which is more dependent on the recovery in inbound travel.”

Buildings are already facing lower rents. Prime grade office rents in the Raffles Place and Marina Bay precincts shrank about 10 per cent in 2020, according to Knight Frank. The real estate consultancy expects Singapore office rents to decline around 5 per cent in 2021 before bottoming out and recovering next year, it said in a quarterly report.

Under Singapore rules, no more than half of an entity’s employees can be in the office at any point and employers must ensure their staff continue to work from home for at least half the working time.

In a written parliamentary response on Monday, Trade and Industry Minister Chan Chun Sing said the long-term impact of work-from-home on office demand remains to be seen as the pandemic evolves. Occupied office space increased in the last quarter of 2020 from the previous three months, while vacancy rates fell slightly, he said.

“The government will continue to monitor the market, and calibrate the supply of commercial properties if needed,” Mr Chan said.

Downsizing Space

Even as global tech behemoths expand their footprint in Singapore, its office market has already seen companies like Citigroup and Mizuho Financial Group trim space.

Tenants are looking to downsize their hub spaces and are less willing to commit to longer-term leases, said Jennifer Chia, a partner at TSMP Law Corp who heads the corporate real estate as well as banking and finance practices.

Some remain optimistic that the market will pick up. Despite the lengthened work-from-home arrangement, CapitaLand Integrated Commercial Trust has seen more leasing inquiries over the past few months, largely from the financial sector, a spokesperson said.

Companies may eventually adopt flexible or hybrid working solutions, and accommodating them will ensure the relevance of the office workspace, the CICT spokesperson said.

Frasers Property hasn’t seen any significant change to the performance of its Singapore commercial properties, as tenants progressively return to the office, a company spokesperson said. The firm aims to provide flexible solutions to complement physical spaces.

Major Singapore Reits could raise office rents for leases expiring this year, according to Bloomberg Intelligence analysts Patrick Wong and Kristy Hung. An improving employment outlook and supply withdrawal for redevelopment could support a rental recovery, they wrote last week.

“While office Reits and developers will feel the pinch in the short term, the innovative ones are using this opportunity to pivot to the office hub of the future,” Mr Chia said. “Industry players who are less able to reinvent themselves and those who do not have the resources to make the switch will be the biggest losers.”