Why the flight to Grade A+ buildings makes sense for businesses

Average rents in Grade A+ buildings have declined 10%.

The office market still has not felt the impact of "flight to efficiency" in the past months, as physical relocations are only slated for the first six months this year.

According to Knight Frank, the flight to Grade A+ buildings in the Raffles Place-Marina Bay district continues to make sense for many businesses, as average rents fell 10.0% over the year.

The firm noted that rents of Grade A+ spaces in the said district have fallen 16.4% from the last peak in Q1 2015, which is now at sub-$10 psf per month.

"...average rents in Grade A+ offices are now at Grade A office rent levels in H2 2015, presenting a compelling proposition for businesses rationalising their overall business cost and looking to re-balance and re-negotiate their occupancy cost," Knight Frank said.

It noted that similarly, rents in Grade A office spaces in the same district declined 10.9% over the year to reach $8.30 psf per month.

"This reflects the average rent levels of Grade B offices in the first half of 2015, after having fallen 13.3% since the last peak in the first half of 2015. Vacancy rate remains temporarily low at 3.0%, but is expected to see a significant increase by the middle of 2017 as tenants who have pre-leased in other buildings relocate," it said.

Kinght Frank furthered, "Landlords will need to work closely with tenants in the coming year, understanding their requirements and helping them meet both their business and cost needs, tiding them through the tough economic conditions with win-win lease structures before the climate picks up again."

With this, it projects prime office rents to continue to moderate by 6% to 9% over this year.