Yields on commercial investment properties have fallen to as little as 2 per cent, but transactions show that even these poor returns have not scared off investors. A steady rise in the prices of retail shops and offices, which had not been matched by rising rents, had whittled rental yields down to between 2.2 and 2.3 per cent in prime locations, and just 2 per cent for grade-A offices in the core Central district, said Elvin Yau Chun-fat, a director of property consultancy DTZ's investment department. Nonetheless, the property investment market has been well supported. Research by Centaline Property Agency showed that sales of retail properties climbed 12.2 per cent to HK$8.04 billion in April, the highest since the previous market peak in 1997. Sales of office properties increased by 22.4 per cent in April to HK$6.45 billion, the highest in 13 months. 'The retail market is the most active as it has directly benefited from the influx of mainland tourists,' Yau said. 'Buyers remain interested despite the fact that at the moment they can generate a yield of just 2 per cent, because they expect yields will increase when they renew tenancy leases. It is not uncommon to see the rents of some shops in prime locations double when their leases expire.' SHK Hong Kong Industries sold its three-storey retail shopping complex at 108-120 Percival Street in Causeway Bay to a mainland investor for HK$1.15 billion last week, 248 per cent higher than its acquisition cost seven years ago. It is vacant and the mainland buyer is looking for a tenant willing to pay HK$5 million a month. Should he secure a tenant at that rent he will enjoy a rental yield on his investment of about 5 per cent. In the office market, mainland end-users have been active. The Agricultural Bank of China last week bought 50 Connaught Road Central in Central for HK$4.88 billion, equal to HK$27,885 per sq ft, making it the most expensive office building in the city in these terms. ICCB Properties, the property arm of China Construction Bank, bought 18 Kowloon East in Kowloon Bay for HK$2.51 billion and will set up its Hong Kong headquarters there. 'Many clients of mainland banks are expanding their businesses overseas. The banks have to meet the needs of their clients and expand overseas with them,' a banking analyst said. 'Hong Kong is best placed to be their stepping stone for expansion.' A property agent said Industrial and Commercial Bank of China had also planned to buy a property in Hong Kong. 'But the office buildings available failed to meet their requirements and they decided to stay at ICBC Tower,' the agent said. Agricultural Bank of China, he added, had two office floors at Admiralty Centre, which was not enough. Since 50 Connaught Road Central was the only en-bloc grade-A office building in Central up for sale the bank did not want to miss its chance. In contrast to the interest from mainland buyers, European and United States investment funds were no longer active in the local property investment market, the agent said. 'It is difficult for them to raise funds. We saw some funds start to raise capital earlier this year, but they have not yet raised enough to make sizeable investments,' he said. Henry Lam, executive director at Knight Frank, said many buyers were concerned that property prices in Hong Kong had reached high levels. 'But interest rates are low and the Hong Kong economy is still benefiting from the fast-growing economy of the mainland,' Lam said. 'Compared with other Asian cities the market here looks attractive and transactions remain active.' $27,885 The price per square foot, in Hong Kong dollars, paid for 50 Connaught Road, making it the city's most expensive office building in those terms