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SCMP Reporter

AVERAGE office values in Central have plunged 32.26 per cent to $10,500 per square foot from their speculative peak in the second quarter of last year, according to the latest Vigers/Knight-Ridder Property Index released yesterday.

Compared to the last quarter of 1994, average values in Hong Kong's core business district fell 22.22 per cent.

Similar falls have been seen in other parts of the territory, with speculators taking to the sidelines ahead of an expected surge in new office supply from various reclamation projects in Hong Kong.

Rising interest rates and falling rental returns also have dampened investor sentiment.

For the Wan Chai-Causeway Bay satellite area, the Vigers/Knight-Ridder Index showed average prices at the end of the first quarter of 1995 standing at $7,500 per sq ft, down 16.67 per cent from the previous quarter, and down 31.82 per cent from the peak last year.

However, Bruce Walker, director of Vigers' investment department, said the dramatic falls in the index should be taken with a pinch of salt when compared against the peak between April and June last year.

The market then was extremely speculative, with investors pushing prices artificially high, he said.

Mr Walker said the figures were slightly misleading also in that many speculators who bought during that peak time had since defaulted on their deposits rather than take possession of the devalued property. This had invalidated some of the price records reached last year.

'That means the April-June figures in 1994, although accurate portrayals of sales agreements, did not reflect the actual prices at which property traded hands,' he said.

In recent weeks, Mr Walker said, buyer sentiments had begun to improve, with six or seven significant sales reported between January and March.

He said: 'People are looking now, and the feeling is: we may not be at the bottom of the market, but let's have a look. But it may be a false dawn, because I don't think we've seen the last of interest rate rises.' The index shows office rentals on Hong Kong Island in March continuing their progressive fall, with the largest drops again seen in Wan Chai and Causeway Bay.

New office transaction rents in northern Wan Chai fell 2.02 per cent to $53.40 per sq ft a month, down a cumulative 11.4 per cent since the end of last year.

Those in Causeway Bay fell another 1.12 per cent, to an average $44.30 per sq ft, down a total 6.7 per cent since the start of 1995.

 In Central, rents were firmer, buttressed by a lack of new supply before the end of next year and a captive client base.

 Average new monthly office rents in Central fell only 0.38 per cent in March to $79.10 per sq ft.

 Vigers commercial director Paul Dwyer said: 'Central is dominated by Hongkong Land, one of the two or three best managers of property in Hong Kong, and it has been very clever in the way it has upheld rents.'  Hongkong Land, a Jardine Matheson subsidiary which owns 10 million sq ft, or about 40 per cent of the total Grade A office stock in Central, is able to dominate the market.

 Mr Dwyer said that since most rent renewals were settled by binding arbitration, Hongkong Land could use data from its vast operations as evidence before arbitration panels, and thereby support its rents.

 Office landlords in other, outlying areas did not have that advantage, because many owned individual floors or buildings and could not provide the same body of evidence to support rents.

 Mr Dwyer said the downward trend in rentals in peripheral commercial districts could be expected to continue.

 'We have got another few percentage points to go,' he said. 'What you will see happen is Wan Chai and Causeway Bay rents dropping twice as fast as in Central, widening the differential [in rents] further.'  As for industrial prices, the Vigers/Knight-Ridder index showed average values tumbling 10.26 per cent to $1,530 per sq ft over the first quarter of 1995.



Office values tumble 32pc in Central