by Sigrid Zialcita, Managing Director and Christine Li, Director, Research
Financial technology firms – also known as “fintechs” – are using technology and innovation to disrupt traditional ways in which banks and financial institutions conduct business and provide customer services. With supportive government policies in Singapore, along with significant venture-capital backing, fintech is poised to disrupt more than just the banking industry. These firms’ emergence is generating demand for startup hub space, and will likely have a major impact on the office footprints of traditional banks.
According to KPMG, investment in fintech start-ups and scale-ups hit U.S. $19 billion (S$26 billion) in 2015. As a result, two-thirds of global financial services companies polled by PwC ranked profit-margin pressures as the top fintech-related threat, followed by loss of market share and business.
But not all banks are wary of fintech. HSBC, United Overseas Bank (UOB), Oversea-Chinese Banking Corporation (OCBC) and Standard Chartered Bank, just to name a few, have set up on-site fintech labs in Singapore. These labs are dedicated spaces, in which start-ups collaborate with banks to develop innovative technology in areas including wealth management, payments and collections, trade and supply chain, insurance, cybersecurity and artificial intelligence.
Though traditional banks are starting to collaborate with financial technology companies, such companies are still more likely to congregate around hubs with a solid start-up ecosystem. Singapore boasts such a system, offering a business-friendly environment that hosts 2,400-3,600 start-ups.
The question then becomes, how does the rise of fintechs impact commercial real estate? As more banks rush to partner with fintechs, co-working environments will likely be carved from banks’ existing premises. This, in turn, will increase demand in the office sector, due to added space required to run such partnerships.
Successful fintechs will also generate long-term gains in efficiency and productivity which could, indirectly, lead to more office demand as barriers to entry are lowered. More competitive players could enter the market, which could boost real estate demand.
However, swapping out automation for labor could also reduce banking headcount. It’s estimated that such technology could cut banking workforces, primarily on the mid- and back-end side, by approximately 30% over the next decade. Fewer workers of course, means less space, meaning an increase in office vacancies.
Overall, fintech promises to have a sizeable impact on the financial and banking landscape, with commercial property markets affected as well. On the one hand, a rising fintech industry will fuel demand for start-up space and foster new models of collaboration with traditional banks. This, in turn, will cause the banks and other financial institutions to rethink their office space layout and planning.
Additionally, the spread of automation within the sector is also poised to curb demand for office space among traditional banking and financial tenants. As headcounts are reduced, there will be a need for traditional office space to be reformatted, to meet the new and different workforce.
Sigrid Zialcita is the Managing Director of Research in Asia Pacific for Cushman & Wakefield.
Christine Li is the Director of Research for the Asia Pacific group at Cushman & Wakefield.