The rental gap between Grade A offices and Grade B office space islandwide has narrowed this year. Rents in older buildings at prime locations have held up as their occupancy levels remain stubbornly high. This is expected to change next year when tenants move into new developments and more space emerges in older buildings. Data from CBRE shows that the average monthly rental value in its Grade A basket  '  which covers the best'quality buildings in Ra'es Place, Marina Bay and Marina Centre  '  is likely to end the year at about $9.51 per square foot (psf), from $11 psf in Q4 last year. This re'ects a full'year drop of 13.5 per cent.

On the other hand, the rent decline for Grade B offices islandwide ' which refer to older, smaller or lower'speci'cation office blocks ' will be much smaller, at about 2.3 per cent this year. The average monthly rent is expected to dip from $7.34 psf in Q4 2011 to $7.17 psf this quarter. The resulting $2.34 psf rent difference between Grade A and Grade B offices currently is much smaller than a $3.66 psf gap a year ago.

CBRE forecasts that over the next 12 months, Grade A rents will be 'at, averaging $9.50 psf in Q4 2013, while Grade B rents could drop by 5'10 per cent to as low as $6.45 psf. This will result in the rent gap
widening again to $3.05 psf.

While the gap between Grade A and Grade B rents could narrow in the coming quarters due to higher supply of Grade B office space, we expect the outlook for the office rental market to remain relatively
muted. Slow leasing demand amid an uncertain macro climate and new supply of office space in 2013 could potentially place some pressure on office rents.

Source: AmFraser