Office tenants ditch older Grade A buildings for newer ones

Falling rents lure them to seal the deal for bigger spaces.

With the threat of prolonged decline in rents for office spaces, older Grade A office buildings would feel the most pressure as tenants opt to sign in for newer developments.

According to RHB analyst Vijay Natarajan, some of newer prime office developments have already earned higher commitment levels.

For instance, Guoco Tower has reportedly achieved pre-commitment leases of over 70%, with new tenants coming from a mix of finance and IT companies. Also, Marina One has already hit 35% pre-commitment levels.

"While the pickup in office leases is positive we note that most of the demand is shifting as tenants take advantage of falling office rents to sign up for bigger and efficient office spaces in newer developments," the analyst said.

He noted that this would further pressure older Grade A office buildings rents especially as leases that have been signed on the peak of 2013 to 2014 are due for renewals.

"We expect office landlords to counter the trend by undertaking more AEIs (asset enhancement initiatives) or an outright sale taking advantage of strong office building transactions," he stated.