_Signs of two-tier market emerging as rentals between top grade and older offices diverge

Average rents of Grade A+ buildings in the Raffles Place / Marina Bay precinct bucked the nine-quarter downward trend, on the back of sustained “flight-to-quality” movement. In contrast, looming secondary spaces, the majority of which were released by consolidation activities within the banking and finance sector, exerted an overall check on rents of older buildings. Despite the mixed-bag performance across precincts, overall prime office rents in the CBD remained unchanged at $8.31 psf pm in Q2 2017.

Average Office Rentals, by Key Precincts in Q2 2017

^{Source: Knight Frank Research
• Rents are based on transacted leases
• Rents are based on a lease term of at least three years
• Rents are expressed as values rounded to nearest 10 cent
• Rents are estimated based on leases of a whole-floor office space on the mid-floor levels of office properties, and taking into account rent free period and other concessions}

Relocation activity from small and medium-sized tenants, largely driven by the supply of value-for-money secondary spaces at prime locations, is anticipated to gather momentum in H2 2017. Envisaging an improvement in space take-up on the back of prospects of firmer economic growth, prime office rents in the core CBD precinct will likely recover by 1% to 2% year-on-year, by end-2017.

The full report of the "Singapore Office Market Q2 2017 Bulletin" is available here.