Chart of the Day: Prime office rents drop for the first time in over two years as banks downsize

Marina Bay booked the steepest decline.

Landlords of prime offices in the Central Business District (CBD) saw rents drop for the first time in over two years in Q2, as leasing enquiries thinned and exisiting tenants downsized.

According to Savills, average rents of CBD Grade A offices fell 2.1% quarter-on-quarter to $9.70 psf per month, breaking a streak of nine consecutive quarters of increases.

The rental decline was sharpest in the AAA Grade segment, which saw a 7.4% quarter-on-quarter drop. This was followed by the AA Grade segment which slipped 2.4%, and the A Grade segment which dipped 0.7% on a quarterly basis.

Savills noted that by location, the average monthly rents of Grade A offices in the Marina Bay area declined 7.9% QoQ to $12.67 psf, while rents in the Beach Road, Raffles Place and City Hall areas recorded a softer quarterly drop of 3.8%, 2.8% and 0.6% respectively.

Conversely, rents for Grade A office space in the other sub-markets, including Shenton Way, Tanjong Pagar and Orchard Road, remained flat from a quarter ago.

“Although the existing supply remains relatively tight, the thinning number of leasing enquiries, coupled with substantial supply in the pipeline, continued to vex the landlords of office buildings in the CBD. The returning of excess space by financial institutions, which arose either because of mergers and acquisitions or through the scaling back of certain risky business lines, has put further pressure on the leasing market. Landlords have thus become more pro-active in their marketing efforts, such as making further rental adjustments or offering incentives to both tenants and agents,” said the report.