Fall in prime office rents spurs flight to quality

SINGAPORE – Companies are taking advantage of the continued decline in rents for prime office space to relocate to Grade A+ buildings in the Central Business District (CBD), at the peril of traditionally premium offices in the area.

The average vacancy rate of Grade A+ office buildings in Raffles Place/Marina Bay fell to 5.5 per cent in the first quarter this year from 6.3 per cent in the fourth quarter last year, a report by property consultancy Knight Frank showed yesterday. Conversely, the traditional Raffles Place/Marina Bay Grade A buildings saw their overall vacancy rate rise to 2.9 per cent from 2 per cent over the same period.

“The sustained decline in office rents offers a value proposition for tenants to take up spaces in better buildings and locations with higher specifications and floor-plate efficiencies. For businesses that are able, this is an opportune time for office relocation,” said Mr Calvin Yeo, executive director and head of office, Knight Frank Singapore.

Persistent global pressures, including China’s sluggish economic growth, the volatility in commodity and oil prices, as well as concerns of a potential British exit from the European Union, have cast an increasingly cautious business outlook in Singapore, affecting overall sentiment in the office market.

Average monthly gross rents for both Grade A+ and Grade A office space at Raffles Place/Marina Bay fell 3.9 per cent quarter-on-quarter, said Knight Frank. With rising vacancies, City Hall Grade A offices experienced the steepest drop, falling by 4.1 per cent from the previous quarter. This was followed closely by Marina Centre/Suntec Grade A offices, where rents weakened by 4 per cent over the same period.

The large impending supply of two million square feet gross floor area of new office space by the end of this year is expected to further exert pressure on office rents, especially for prime office spaces in the CBD. Knight Frank is forecasting that rents in prime grade office buildings in Raffles Place/Marina Bay are likely to dip by 8 to 12 per cent year-on-year in the fourth quarter of this year.

“Against the backdrop of heightened market uncertainties, we are envisaging a turbulent year for the office market, with more businesses taking proactive steps to control office occupancy costs. Landlords taking a more flexible stance in tenancy arrangements will be better poised to attract or retain tenants,” said Mr Yeo.