Trouble is brewing in Singapore's prime office market

Vacancy will jump due to large supply and weak demand.

Office leasing activity in Singapore's Central Business District (CBD) is feared to drop drastically in coming quarters on back of skewed demand and supply dynamics.

A report by Knight Frank highlighted that demand from tenants will remain muted as financial institutions continue to scale down operations, while technology and media firms are also expected to adopt a more prudent approach when it comes to expansion.

"This will reduce the demand for prime office spaces in Singapore further as [tenants] also look towards qualifying for business parks with lower rents compared to offices," said the report.

To make matters worse, the CBD will also be inundated with new supply in coming quarters. Anticipated completions include buildings such as Marina One Offices and Guoco Tower, which are likely to obtain their Temporary Occupation Permits (TOP) in 2016.

"Together with space consolidation efforts by financial institutions, office vacancy is likely to increase within the subsequent two to three quarters, leading to a possible moderation in rental growth," said the report.