Published September 12, 2012

Is back-office relocation becoming a trend?

Much depends on external economy, pull from low-cost countries

By Kalpana Rashiwala

[SINGAPORE] Office leasing agents feel it is too early to tell if more financial institutions will move some of their back-office jobs out of Singapore to cheaper locations, following in the footsteps of Credit Suisse and Morgan Stanley.

Some major players, too, reckon they don't have immediate plans to do so.

"Whether more banks will follow suit will depend on external economic performance and the pull factor from low-cost countries. If that happens, it will of course impact demand for business park and office space here," said Savills Singapore director of commercial Agnes Tay.

Jones Lang LaSalle's head of markets, Chris Archibold, notes that given the current economic environment, most major financial institutions (FIs) are looking at cost-savings and real estate costs will inevitably be part of that review.

"From a Singapore occupational cost perspective, the need for savings has driven many FIs to bifurcate their front and back office operations over the past few years. There are currently over 15 major local and foreign FIs that have a presence in both the CBD and in a more cost-efficient back-office or business park location. That said, there are still over 10 FIs that house all their operations in the CBD," he said.

Mr Archibold added that given the steady appreciation of the Singapore dollar over the past few years, some foreign banks are weighing staff costs in Singapore versus cheaper-cost locations, such as India and the Philippines, which has resulted in some reallocation of headcount to those locations. "That said, it is very important to put this into context. So far the effect has been very limited and, based on current announcements, will not have a major impact on the market from a demand point of view," he said.

Agreeing, CBRE executive director (office services) Moray Armstrong said: "From our financial services sector clients we have not seen any sign that there is any radical change in thinking of Singapore as a hub for higher-value regional and global support functions such as product control, credit control and HR."

"But since the global financial crisis we've not seen the same sort of momentum as in the mid-2000s, when major players like Barclays, Credit Suisse, Merill Lynch and Morgan Stanley began setting up these types of functions on regional or even global basis in Singapore," he added.

Market watchers suggest that FIs did not locate middle and back-office hubs to Singapore because it had the lowest costs for real estate or HR. Rather, this was due to the Republic's qualitative attractions, such as availability of skilled staff, good quality of life and low income tax rates.

Earlier this month, the Financial Times reported that Credit Suisse was relocating "dozens" of back-office jobs out of Singapore to India and Poland to cut costs. The move mirrors that of Morgan Stanley, which around the middle of this year completed the relocation of about 80 back-office positions from Singapore to India and Hungary, also to rein in costs. Despite this, Morgan Stanley is said to have significant back office/middle office functions in Singapore, mostly at OCBC Centre. Its client-facing operations are based at Capital Square.

Credit Suisse, too, has not altered its real estate strategy here. It will proceed to occupy the 315,000 square feet that it has leased at the One@Changi City project, when it is completed in a few months.

Also, it plans to give up its space at One Raffles Quay in the CBD and at two existing locations at Changi Business Park as the leases expire. However, it will keep its premises at One Raffles Link primarily for front-office employees, along with its data centre in Serangoon.

Citi Singapore's head of corporate affairs, Adam Rahman, told The Business Times yesterday: "We have no immediate plans to relocate any operations and technology function out of Singapore."

The bank's 400,000 sq ft building at Changi Business Park is home to Citi's operations and technology hub, supporting more than 60 countries around the globe.

In addition, Singapore hosts Citi's Asia Pacific consumer banking hub, Asean investment banking hub and some of the global functions of its transaction services, global markets and private bank businesses. Its front-end offices are located at Asia Square Tower 1.

The bank's total real estate footprint in Singapore increased from 635,000 sq ft in 2000 to 976,000 sq ft last year.

Said Mr Rahman: "Singapore's business-friendly and world-class infrastructure makes it an excellent environment for our business and operation hubs. Factors supporting our decision to locate our global and regional hubs in Singapore include the established credit bureaus, regulatory bodies and comprehensive dispute resolution options available here, Singapore's tax-friendly structure and concentrated pool of local and foreign talent supporting MNCs' expansion into Asia, as well as the developed transportation infrastructure in air, sea and land within and beyond Singapore."

UBS also said there was no change to its IT and operations activities out of Singapore. "Singapore is a major IT and operations centre for UBS, supporting some of the firm's key regional and global operations. Our IT and operations teams comprising over 1,000 staff are located at Suntec City and Harbourfront Tower. We continue to make strategic investments in this area, subject to business needs," said Teo Lay Sie, chief operating officer at UBS Singapore.

Savills notes that based on Urban Redevelopment Authority figures, as at the end of Q2 2012, of the total 78.5 million sq ft office stock across Singapore, 10.9 per cent or 8.6 million sq ft was vacant. As at the same date, there was about 10.6 million sq ft of office supply in the pipeline.

As for business park space, 17.9 per cent or 2.8 million sq ft of the completed stock of 15.8 million sq ft was vacant, while the potential supply stood at 4.4 million sq ft. As at the end of Q2, average gross monthly rental values for business park space stood at $3.80 per square foot, less than half the $8.50 psf for Grade A office space, Savills said.