As the economy continuing to gather strength, Hong Kong's grade A office-leasing market continued its upward momentum from 2004, with all major districts registering rising rentals and reduced availability throughout the second quarter of 2005.

According to the international property adviser,DTZ Debenham Tie Leung, Hong Kong Island's overall take-up in the first half of 2005 reached 1.6 million sq. ft, close to the take-up figures recorded for the second halves of 2003 and 2004. The last 12 months take-up of 3.449 million sq. ft was the highest set of consecutive half-year figure since 2000.

Demand for the past quarter continued to be mainly driven by the financial and banking sectors, which are increasing employment and remain expansionist in terms of office space. Examples include ABN AMRO's leasing of an additional 20,000 sq. ft at the Cheung Kong Center and Merill Lynch's take-up of another 10,000 sq. ft at Citibank Plaza. These transactions reflected the improved business sentiment and heightened optimism about the economy and earnings growth.

In the second quarter of 2005, average vacancies continued to fall across all major districts as many companies increased hiring in line with economic expansion. Over the past 18 months, Central and Island East's vacancies dropped by 5.1 percentage points to 7.9 percent and 10.3 percent respectively. Meanwhile, Tsimshatsui's vacancy has hit a new low of 6.4 percent in five years, thanks to booming exports and trading markets in the wake of a global economic recovery.

Average net effective rents continue to rise across all major districts in the second quarter with Central and Tsimshatsui both registering a 21 percent increase from the previous quarter. Meanwhile, the effective rents in Wanchai/Causeway Bay and Island East increased by 17 percent and 13 percent respectively. Tsimshatsui's rents, having risen by 28 percent in the first half of this year, are now at their highest level since 1997.

"The strength of grade A office demand is well reflected in thepace of rental growth," said David Watt, executive director of DTZDebenham Tie Leung, adding "It is still the financial sector that is driving most of the demand but other industry sectors are contributing as well."

"It is encouraging to see from our analysis that Hong Kong is enjoying a full office market recovery, which is believed to be more healthy and sustainable. With the economy continuing to gather strength, activity in the office-leasing market is expected to remain buoyant. This, alongside a backdrop of limited new supply within these two years and increasing demand for prime office space, is set to boost average effective grade A office rents by a further 10 to 15 percent by the end of this year," Wattsaid.

Source: Xinhua