This is expected to be further exacerbated as demand from traditional big office space users from the financial sector decline.
Based on Knight Frank's office basket, Q1 monthly gross office rents for Super Grade A office buildings dropped 12.6 per cent from the previous quarter, averaging to about $11.40 psf; gross office rents for Grade A buildings dipped 2.6 per cent quarter-on-quarter, averaging to about $10 psf.
The decline in Super Grade A rents was mainly attributed to competition among existing Super Grade A office buildings, and the new supply from Marina Bay Financial Tower 3 (slated for completion this year).
In addition, a number of lower rental transactions - due to less desirable units in buildings fronting the Marina Bay Sands but with no 'scenic view' of the integrated resort - led to a drag on average rents in the cluster.
Looking ahead, Grade A office buildings can expect more challenging times, as the 'flight-to-quality' trend continues, said Knight Frank, citing Bank of America Merrill Lynch's and Citibank's expected move to OUE Bayfront and Asia Square, respectively, by the end of the year.
Office buildings in the Suntec/City Hall area is expected to face a similar problem, noted Knight Frank.
'While current office rent in this micro market is holding strong at about $9.40 (a one per cent q-o-q drop), some 140,000 sq ft of office space is expected to be available in the market by the end of the year, which may lead to significant downward pressure in the next few quarters,' said Knight Frank.
Notably, office rents in Tanjong Pagar and CBD fringe areas remained fairly resilient, supported by leasing activities from smaller-space users, such as boutique-sized companies providing auxiliary services to MNCs.
'Current leasing activities are still relatively active as leasing enquiries continue to flow in, albeit for smaller spaces,' noted Knight Frank. 'Service offices are gaining popularity as new-to-Singapore firms adopt a more prudent approach to lease interim office spaces which are almost fully fitted out and are in ready-to-move-in conditions, before taking up a conventional office space subsequently as they establish their businesses locally.'
Monthly average gross office rents for Grade A buildings in the Shenton Way/Robinson Road/Tanjong Pagar area stayed firm at $7.80 psf.
Similarly, average monthly gross office rents in suburban locations remained relatively firm at $6.20 psf.