LEASING activity increased in the first quarter, but average rents fell, according to real estate firm CBRE.
It reported yesterday that 15,229 leases were commenced in the three months to March 31, up 3.1 per cent on the 14,773 begun in the fourth quarter of last year.
It was also 13.5 per cent more than in the first quarter of last year.
CBRE credited this to a "flight to quality" - tenants in older developments or HDB flats took advantage of lower rents to move into newly built condominiums.
It added that new permanent residents (PRs) could also have contributed to the increase as they rented homes while waiting the mandatory three years before buying resale HDB flats.
But the increase in rental volume did not push up rents, which fell in all regions.
The decline was the steepest in the core central region, comprising districts 9, 10 and 11 as well as the Downtown Core and Sentosa, where the rental index fell by 1.9 per cent compared with the fourth quarter of last year.
It declined 1.8 per cent in the outside central region - suburbs such as Yishun and Pasir Ris - and by 1.6 per cent in the rest of central region, which includes city-fringe areas like Bishan and Toa Payoh.
Mr Joseph Tan, executive director of CBRE's residential division, said the sharper falls in the core central and outside central regions were mainly due to an increased supply of rental properties.
He said the core central zone traditionally has the highest supply of rental stock but had been hit by the availability of newer housing at lower rents as well as by the "shrinking budget of expatriates".
CBRE told The Straits Times that this was due to the recent practice of hiring expatriates on "local" rather than expatriate terms, meaning they receive a lump sum rather than a separate accommodation budget.
Mr Tan added that an "unprecedented" number of new condominiums had been built in the outside central region last year.
CBRE said that 2,976 new homes were built in the first quarter, including those in the outside central region, such as Hedges Park with 501 units and Woodhaven with 337.
He said many of these condos had been bought for investment rather than occupation by their owners, adding: "Under the present lull market, these owners were more prepared to secure tenants at lower rents rather than leave them vacant."
The occupancy rate increased to 92.8 per cent this quarter as the number of vacant units fell by 7.1 per cent.
Mr Tan said the fall in rents in the rest of central region may have been softened by the higher percentage of "shoebox" units, which CBRE defines as units up to 600 sq ft.
These small apartments have high value per square foot (psf) and so push up average rents.
Rents declined across all property classes as well.
Compared with the first quarter of last year, average rents for luxury properties fell 2 per cent to $4.95 psf per month, rents for prime properties fell 4.2 per cent to $4.55 psf and those for other property fell 6 per cent to $3.15 psf, said CBRE.
CBRE expects the increase in rental volume to be temporary. It estimates that the full-year's leasing volume will fall by 5 per cent to 10 per cent compared with last year, mainly owing to more foreigners on a work pass opting to become PRs and citizens, and buying rather than renting property, as well as expatriates leaving.
It also expects rents to decline by 5 to 7 per cent, citing the "mounting pressure" from the rising supply of properties.
It said nearly 22,000 new homes are expected to have been built by the end of this year, 10.4 per cent more than the 19,921 built last year.