Prices of office space in the central region decreased by 3.9 per cent in the third quarter, compared with a 0.9 per cent increase in the previous quarter, Urban Redevelopment Authority (URA) data showed yesterday.

Its rental index of office space in the central region declined 0.6 per cent in the third quarter, compared with a 1.3 per cent increase in the prior quarter.

There was a total supply of about 738,000 sq m of gross floor area of office space in the pipeline as at Sept 30, up on the 732,000 sq m in the previous quarter.

The islandwide vacancy rate of office space fell from 11.5 per cent as at the end of the second quarter to 10.6 per cent as at Sept 30.

Meanwhile, retail rents in the central region increased by 2.3 per cent in the third quarter, after falling 1.5 per cent in the second.

The URA's price index of retail space in the central region was up 1.1 per cent in the third quarter, compared with a 0.4 per cent increase in the second.

There was a total supply of 288,000 sq m of gross floor area of retail space from projects in the pipeline as at Sept 30, down from 320,000 sq m in the previous quarter.

Ms Tricia Song, head of research for Singapore at Colliers International, said its research found that CBD Premium and Grade A gross effective rents grew at a slower rate of 1.5 per cent on a quarterly basis, versus an increase of 3 per cent in the previous quarter. This brought rents to $10.08 per sq ft a month.

"With tenants showing resistance to further rent hikes, the market is increasingly seeing a flight to value," said Ms Song. "Vacancy increased to 3.3 per cent from 2.9 per cent as a result."

Ms Song added that she expects rental growth to continue to slow in line with slower economic growth.

The higher rental index for retail may have been propped up by the strong performance of newly completed projects that are near major transport nodes, said Mr Desmond Sim, head of research for South-east Asia at CBRE.

However, the retail market continues to be under pressure. "The limited upcoming supply remains the saving grace of the market and will help to support occupancy and cushion any significant decline in rents, if any," he added.