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

Presentation to

Association for Project Management (APM)

Dr Sing Tien FooCentre for Real Estate StudiesDepartment of Real Estate, NUS9 April 2002

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

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.

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

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

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?

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

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.

Office Space Demand

Quantity of space

MarketRent

Aggregate Demand Curves

D

D

D’

D’

OriginalMarket ClearingCondition

QQ’

R

R’

b

a

a = demand shift caused by rental increaseb = structural shift in demand curve brought about

by the ICT revolution Source: Dr Sing Tien Foo

Revolutionary levels

Evolutionary levels

Range of potential benefits

Deg

ree

of b

usin

ess

tran

sfor

mat

ion

High

HighLow

Low

Level 5: Business scope redefinitionLevel 5: Business scope redefinition

Level 3: Business process redesignLevel 3: Business process redesign

Level 4: Business network redesignLevel 4: Business network redesign

Level 2: Internal integrationLevel 2: Internal integration

Level 1: Localized exploitationLevel 1: Localized exploitation

5 Levels of ICT-Induced Firm Operation 5 Levels of ICT-Induced Firm Operation Evolution Evolution

Source: Venkatraman, 1991

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.

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)

Respondents’ Profile

28%

26%

28%

11%7%

Real Estate, Finance & InsuranceBusiness, Retail, Trading & AdvertisingMedia, telecommunication & IT Trasport, Industrial Biz, & LegalOthers

Current Office Size (sf) Occupied

73%

9%

7%11%

Below 50005001- 1000010001 - 15000above 15000

Importance of ICT Products?

34.815.219.6

21.72.2

73.94.3

58.715.2

50

41.34.3

19.613

4.352.2

2.237

065.2

1330.4

067.4

0 20 40 60 80

1

2

3

4

5

6

7

8

9

10

11

12

Not Important

Very Important

Desktop

Laptop

Printer

Mobile Phone

Fax Machine

Voice Mail

Video Conferencing

Intranet/LAN

Internet/Server

Email

Electronic Data Sharing

Customized/Task Oriented Software

Impact of ICT on Office Operation?

32.6 32.6 34.8

54.3 32.6 13

78.3 19.6 2.2

10.9 6.5 82.6

67.4 19.6 13

71.7 19.6 8.7

65.2 26.1 8.7

67.4 13 19.6

0% 20% 40% 60% 80% 100%

1

2

3

4

5

6

7

8

No Change Reduce Increase

Quality of Space

Cost of Operation

Number of Meetings

Importance of Meeting Place

Workers Productivity

Need to Meet-up

Employee’s time in Office

Overall Space Req’d

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%)

No11%

Yes89%

Does ICT Facilitate Working Away?

No43%

Yes57%

9

17

Does company encourage work away?

No

Yes

ICT on working practices

0%

10%

20%

30%

40%

50%

60%

Aministra

tive

Mark

eting

Managem

ent

Others

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

Customer Services & ICT

0% 20% 40% 60% 80%

0% 20% 40% 60% 80% 100%

Email

Telephone

By mail

In Person

Means of Establishing Contacts with Customers

Usual Meeting Place

Factors influencing office space requirement

70%39%

63%22%

20%30%

46%

0% 20% 40% 60% 80%

RentBuilding size

Employee sizeIT-readiness of building

Prestige of buildingNature of business

Location of building

Logit Model 1 Factors affecting perceived space change in future

Variable Coefficient Standard error Wald statistics Significance level

SECTOR -.259 .265 .956 .328

OFFSIZE -1.737 1.959 .786 .375ICT.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 .387AT.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 2 Factors affecting actual office space changes

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

Case Interviews – A Quick GlanceBusiness type Productivity Staff

StrengthLocation Choice

Insurance Yes Less clerical Hot-desking in future

Non-profit training institution

Marginal No impact No impact

Legal service Definitely Less clerical, More IT staff

Near courts, near clients

Dot.com Central theme Related staff Near client, no hot-desking

Property Consultants

Yes Less clerical No hot-desking, face to face important

Property Consultants

Definitely Less clerical, More IT staff

Cant hot-desk, face to face important

Management Consultants

Definitely Less clerical, more consultants

Near CBD, Office hoteling

Medical Suppliers Yes Less clerical, IT outsourced

Outside CBD, face to face important

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

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

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.

Thank you

Questions & Comments

The author wishes to thank Mr Don Toh for his research assistance.