Office rents in Singapore's Central Business District (CBD) fell in the third quarter, the first decline since 2013, according to two reports out yesterday.
Average monthly gross rents in Marina Bay fell 5.5 per cent from the second quarter to $13 per sq ft (psf), while those in Raffles Place fell 3.4 per cent to $10.45 psf, said DTZ.
It was a similar story in the city fringe, including Beach Road, Anson Road and Orchard Road, where rents fell 2.1 per cent to $8.25 psf.
"Leasing incentives have increased as landlords compete to retain and attract tenants to sustain or improve space take-up," said Ms Cheng Siow Ying, DTZ executive director of business space.
These incentives can be longer fitting-out periods, rent holidays or rental rebates, which mean lower net effective rents for the occupiers, she added.
The decline in office rents also extended to the suburbs, a Chestertons report noted.
Suburban Grade A rents, which contracted 0.9 per cent in the second quarter, dipped another 0.3 per cent to an average of $5.75 psf in the last quarter, it found.
The business community was expecting a decline in revenue and profits in the fourth quarter, given the gloomy economic outlook, said Ms Elaine Chow, Chestertons head of research. "Expansion plans were placed on the back burner."
Major leasing transactions in the third quarter were typically flight-to-quality relocations to new completions, she added.
Healthcare technology and medical supplies provider Covidien inked about 50,000 sq ft at Mapletree Business City II, which will be completed next year.
The Commonwealth Bank of Australia will relocate from Millenia Tower to recently completed South Beach, while Marubeni Singapore and Nordea Bank will move from Hong Leong Building and Springleaf Tower to CapitaGreen.
"That said, the leasing market remained weak and subdued as traditional demand drivers, such as those from the banking and financial industry, continued to downsize and consolidate," said Ms Chow.
Standard Chartered Bank and Deutsche Bank, for example, both announced more job cuts last month.
Overall office occupancy in the CBD fell 0.9 percentage points from the second quarter to 95.0 per cent, with declines in both Shenton Way and Marina Bay sub-markets, according to DTZ's report.
Raffles Place was a bright spot, with occupancy inching up 0.4 percentage points to 96.7 per cent.
Office rents will come under immense pressure next year, both reports noted. About 2.6 million sq ft of space will be completed in the CBD, including about 1.9 million sq ft at Marina One.
The CBD fringe projects DUO Tower and Guoco Tower, which will have about 1.5 million of space in total, will also be completed next year, said DTZ.
A further 1.1 million sq ft of CBD space will be completing from 2017 to 2018 as well, including SBF Centre and Frasers Tower.
"As of now, the average pipeline supply in the CBD from next year to 2019 is still less than the average annual demand in the same area from 2011 to last year," said Dr Lee Nai Jia, head of research for South-east Asia at DTZ.
Rents could stabilise after 2018, as the supply is absorbed, he added.