Hong Kong slipped one notch down to the third most expensive city in terms of office rent.

Surveying firm Cushman & Wakefield conducted a research to review the global rental trend for 2006.

Hong Kong office stood at the third highest with average office rent of HK$115.7 per square feet, behind London West End and CBD of Tokyo.

None of the mainland's four largest cities occupied the top 50 position. The report indicated Shanghai and Beijing would have double-digit rental growth over the year because of strong market demand.

Hong Kong office market experienced a bullish ride in 2006. The rental growth hit almost 40 percent. The report attributed the surge to limited new supply in the market.

"Given that no new projects are in the pipeline for the CBD until 2010, occupier will consider decentralized sub-markets where the supply is relatively higher," said the report.

The rental hike catalysed exodus of CBD occupants to fringe districts. For instance, Societe Generale shifted the Hong Kong branch from Landmark in Central to Pacific Place in Admiralty in the face of the rental hike.

The report continued that expansion of multinationals is the driving force for high-end office market of the mainland.

"The office markets in Shanghai and Beijing picked up strongly last year, underlined by robust take-up rate." However, the abundant new supply in CBD pushed vacancy over 12 percent and to 4 per cent for Beijing and Shanghai respectively.

Despite that 400 000 square meters new grade A office are expected to be completed in 2007, the report believed the two cities office rents would maintain double-digit growth.

DTZ report showed that Beijing office supply would reach 1.5 million square meters for the first half of 2007, 42 percent of the new supply coming from the CBD area.

For the sales and investment market, the report pointed out that the ever-growing need of domestic enterprises becomes a dominant force in the grade A office sales market.

"Overall, the corporation and competition of domestic and foreign capital provide all industries with stable impetus, which ensures a bright long-term prospective for Beijing grade A office market."

(HK Edition 02/16/2007 page6)