Tenants’ flight to quality puts pressure on Grade A office space rents

Tenants’ flight to quality has put pressure on rents of Grade A office space, according to Knight Frank’s latest Singapore 3Q2016 office bulletin.

Grade A office rents in the Raffles Place/Marina Bay district fell 2.9% q-o-q in 3Q2016 to between $8.20 and $8.70 psf per month, the largest decline among key precincts within the CBD. Meanwhile, Grade A+ office space in the same area saw a rental decline of 2.1% to between $9.30 and $9.80 psf per month. In Shenton Way/Robinson Road/Tanjong Pagar, Grade A office rents fell the least, declining 1.5% q-o-q in 3Q2016 to between $7.40 and $7.90 psf per month.

In the past two quarters, the pursuit by landlords of upcoming and newer buildings to secure tenants had gained momentum. Thus, several established tenants from Grade A buildings will relocate to Grade A+ buildings in the coming quarters. Vacancy in Grade A buildings will increase in the next two years as these tenants move and put pressure on rents.

Knight Frank expects Grade A offices to see a larger decline in rents and occupancy than Grade A+ offices in the coming quarters. In addition, average office rents are expected to continue falling before bottoming out in 2018.

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