Office rents to fall 3% in Q4

Companies are moving to better space, not expanding.

Premium and Grade A office rents and capital values will soften further into H2 2017 amidst benign economic conditions and large new supply, said Colliers International.

Overall capital values of Premium and Grade A office buildings in CBD have fallen 2.1% since Q1 2016 and Colliers International expect them to remain muted against a background of declining rents and higher vacancies.

The research firm noted that overall Central Business District (CBD) office rentals in Q4 2016 will continue to decline by up to about 3.0% quarter-on-quarter (QOQ), bringing full year 2016 decline to 7.0%-12.0%, and a cumulative average of 9.4% since the recent peak in Q2 2015.

According to Colliers International, there are higher pre-commitment rates for some upcoming projects albeit at the expense of older prime buildings. Hence, it expects competition among landlords to fill the backfill spaces, especially in older office buildings, to intensify over the next few quarters.

Furthermore, it said that demand is mainly characterised by relocations and flight to quality rather than expansions.

It added that landlords, meanwhile, could favour shorter leases at more attractive rates, allowing them to ride any rent recovery after the next two years.