Are Singapore's prime office rents finally bottoming?

More tenants are ditching old spaces for new developments.

The prime office space market is expected to see larger rental and occupancy declines as more tenants move into new prime offices.

According to a report by Knight Frank, Grade A office space in the Raffles Place / Marina Bay district saw the largest QoQ rental decline of 2.9% of the various locations in Q3 2016, while Grade A+ office space in the same area saw rental decline moderate slightly, falling 2.1% QoQ.

Knight Frank Singapore Executive Director Calvin Yeo said upcoming vacancies in Grade A buildings will increase in the next two years as these tenants relocate, leading to rents bearing the pressure.

“While we are seeing tenants able to relocate taking the opportunity to take flight to quality, the test over the coming quarters will be for buildings which will lose their tenants to backfill the vacancies amid the ongoing economic uncertainty," he said.

More so, competition for tenants will be rife, particularly among buildings fighting to backfill vacancies from tenants who will be relocating.

With this, a two-tiered performance is expected in the prime office market. Greater divergence in rental and occupancy performance is expected in the prime office market, as Grade A offices are expected to see larger rental and occupancy declines than Grade A+ offices in the upcoming quarters.