Impact of Information & Communication Technology (ICT) on Office Demand in Singapore CBD

1. Impact of Information & Communication Technology (ICT) on Office Demand in Singapore CBD Presentation to Association for Project Management (APM) Dr Sing Tien Foo Centre for Real Estate Studies Department of Real Estate, NUS 9 April 2002

2. Outline of Presentation • Introduction • Trend in ICT application • Effects of ICT on Office Space Allocation & Work Practices • Survey Sample & Data Collection • Mailed Questionnaire Results • Logit Model and Other Statistical Tests • Case studies by interview • Conclusion

3. Introduction • ICT has frequently been thought to be the driving force behind today’s economy. • It is generally felt that there is a direct relationship between investment in ICT and productivity improvements, which include • better customer service • greater product variety • shorter response time • enhanced product quality; and • better customization of products and services.

4. What is ICT? • Information & Communication Technology (ICT) is used to refer to infrastructure and product development that facilitate the collecting, storing and analysis of information that may be transmitted electronically • It includes equipment like telephones, communication lines used to enhance communication between employers and employees, businesses and customers, and business and business across physical boundaries

5. Growing ICT Adoption Rate in Singapore • Government has been actively encouraging firms to upgrade their connectivity and productivity via its agencies like IDA, EDB, PSB • Schemes offered include: • Local Enterprise Computerisation Programme (LECP) by IDA (assist SME to achieve higher competitiveness through effective use of IT) • Jumpstart Programme by PSB (assisting SME to adopt E-commerce) • IDA’s “Information & Communication Technology ICT usage survey 1999”indicates a high ICT adoption rates among businesses in Singapore

6. What are the Implications of ICT for Office Operation and Space Usage? • Computer and information technologies are expected to bring about “the third wave” of revolution to the production and social interactions in the new economy • How would these new ways of production and customer-manufacturer relationships impact on the demand for office space? • Would this IT revolution lead to a major structural change in the office space demand? • How would the location choice, spatial configuration and functional connectivity of the physical office space be changed to meet the demand of the IT-driven businesses?

7. ICT Trends & Investment in Singapore Office Buildings • In Singapore, IT-ready office space commands a market premium over obsolete and IT-unfriendly office buildings • A trend of facelift to existing office buildings where developers or owners spend million of dollars to provide broadband connection and raise floor facility to entice tenants in IT related business • Singapore Land Tower located in the prime Raffles Place business district is one the building that is currently undergoing million dollars upgrading to improve its facility and functionality • Hot-desking, home-office and tele-working is another emerging trend in the office market, • These will significantly transform the way work is carried out and lead to a reduction in demand for physical office space in the long run

8. Relationships of ICT-readiness on Offices Space Use? • How would active integration of ICT into the work place help companies to reduce the physical space requirement? • Aren’t the companies’ space decisions dependent on the prevailing market rents? • There are no easy answers at this stage to the questions. • However, the market driven and ICT induced office space demand shifts can be conceptually explained ceteris paribus using the familiar demand function as shown in Figure 1.

9. D Original Market Clearing Condition Market Rent D’ a R’ Aggregate Demand Curves b R D D’ Q’ Q Quantity of space a = demand shift caused by rental increase b = structural shift in demand curve brought about by the ICT revolution Office Space Demand Source: Dr Sing Tien Foo

10. High Level 5: Business scope redefinition Level 4: Business network redesign Level 3: Business process redesign Degree of business transformation Level 2: Internal integration Level 1: Localized exploitation Low Low High Range of potential benefits 5 Levels of ICT-Induced Firm Operation Evolution Revolutionary levels Evolutionary levels Source: Venkatraman, 1991

11. Impact of ICT on Office Space Demand • ICT impacts on office space demand would take place in three broad areas: • business function and configuration, • staffing structure and • location choice. • More information and transaction via the virtual space rather than the physical space (e.g. internet banking, electronic stock brokerage, NET transaction) • Flatter organization structure. • Ratio of clerical staff to administrative and executive staff is likely to reduce • Productivity of the staff increases as a result of office automation. • Span of control of managerial staff • ICT-induced decentralization of office space for companies that operate largely over the virtual space.

12. Research Design – Survey Sampling & Data Analysis • Mailed Questionnaire Survey – pilot phase • In 4th quarter 1999 URA statistics, 41.64% of the total of 5.88 million square meters of office space were concentrated in downtown core. • Sample of tenants is restricted to CBD areas • 500 tenants in offices within CBD areas ar randomly selected • Response rate was poor at 9% (46 responses) • Distribution of respondents profile (Figure 1)

13. Respondents’ Profile

14. Current Office Size (sf) Occupied

15. Importance of ICT Products?

16. Impact of ICT on Office Operation? Quality of Space Overall Space Req’d Employee’s time in Office Need to Meet-up Workers Productivity Importance of Meeting Place Number of Meetings Cost of Operation

17. How ICT Help to Improve Productivity? • Shorten Data process time (82.9%) • Reduce Number of Clerical Staff (58.5%) • Reduction in storage space for document (56.1%) • Increase Span of control of Middle Management (51.2%)

18. Does ICT Facilitate Working Away? Does company encourage work away? No Yes

19. ICT on working practices • Reasons against working away practice • Lesser control (34.3% • Lack of trust (11.4%) • Nature of job site (80.0%) • Resistance from employees (2.8%) Nature of works that will suit “working away” practice

20. Customer Services & ICT Usual Meeting Place Means of Establishing Contacts with Customers

21. Factors influencing office space requirement

22. Variable Coefficient Standard error Wald statistics Significance level SECTOR -.259 .265 .956 .328 OFFSIZE -1.737 1.959 .786 .375 ICT.EXP 1.478 1.159 1.625 .202 MAINTNCE 1.638 1.078 2.308 .129 WEBPAGE -1.841 1.736 1.124 .289 NO.EMPLY .910 1.301 .489 .484 C.EMPLOY -1.518 1.756 .747 .387 AT.WKAWY 5.997 3.050 3.867 .049 RENT.DRP 3.843 2.449 2.462 .117 PDTY.OFF -1.532 2.094 .535 .465 Constant -2.871 4.297 .447 .504 Logit Model 1 • Factors affecting perceived space change in future

23. Variable Coefficient Standard error. Wald statistics Significance level SECTOR .040 .131 .091 .763 OFFSIZE -.765 1.527 .251 .617 ICT.EXP -2.020 1.913 1.115 .291 MAINTNCE 1.584 1.102 2.065 .151 WEBPAGE -3.930 1.958 4.027 .045 NO.EMPLY -.495 1.093 .205 .650 C.EMPLOY 2.547 1.750 2.118 .146 AT.WKAWY 1.368 1.737 .621 .431 RENT.DRP 2.456 1.532 2.570 .109 PDTY.OFF -1.803 1.821 .981 .322 Constant -.011 3.440 .000 .997 Logit Model 2 • Factors affecting actual office space changes

24. Case Interviews – A Quick Glance

25. Case Study 1 – Allianz Insurance Management Asia Pacific • 70 staff in Singapore office • ICT increases efficiency & productivity of employee and reduces manual and clerical-type tasks • Minimizing operation cost in long-run • Moved from Shaw Building to Centennial Towers – space increased from 10,000 sf to 20,000 sf • Reasons: expansion of business and prestige of the Mariana Bay office location • Wireless applications will have impact on work practices, as staff are frequently not working from their dests • Tele-conferencing & hot-desking is important

26. Case Study 2 – Accenture Consultants – Business services • The firm provides consulting services related mainly to business management and technology • 500 staff in Singapore office • Located in the Gateway Building • 25% increase in space over the last 3-year due to business expansion • Adoption of office space conserving concepts like “office hoteling” and “hot-desking” • 80% of staff are professional consultants, and they are apt to office hoteling – worked mostly at the clients place • ICT expenditure – 3% total operating expenses • ICT increases productivity & revenue • It reduces clerical staff, but increases IT personnel to maintain the system

27. Conclusion • Growing trends in ICT application in office • Improved productivity via automation of selected operations • Impact of ICT on demand is not significant • Small proportion of respondent experienced a reduction in employee size with an increase ICT investment • Physical meeting place and office space are still important • Most respondents do not encourage employees to “work away” away from office • The logit models suggest that probability of office space reduction is related to the increase adoption of new work preactices • Availability of webpage may also be a factor affecting the downsizing of office space • We will continue to see changes in the office space use and emerging of new office practices eg. Service office, telecenter, hot-desking etc.

28. Thank you Questions & Comments The author wishes to thank Mr Don Toh for his research assistance.