THE response to the lease of Yen Sheng Centre, one of the first batch of industrial/office (I/O) buildings to be completed in Hong Kong, might test actual market demand in the composite property sector. The property in Kwun Tong is the latest I/O development coming onto the market, following the release of developments at 3 Yuk Yat Street, in Tok Wa Wan; 8 Commercial Tower, in Chai Wan; and Henderson Land Development's New Trend Centre in San Po Kong. Francis Li, director of C Y Leung & Co, the project's joint leasing agent, said that it would be the first I/O building in Kwun Tong district, and the first I/O development with 100 per cent ancillary office content under construction. The relaxation of 75 per cent ancillary office content to 100 per cent in an I/O composite building, was announced by the Government in October 1993, according to Mr Li. Leasing for the project, developed by the handbag manufacturer Lee Sang Investment, started last week. The leasing drive started after 20 per cent of the development had been sold. Property agents said the developer released the remaining units at Yen Sheng Centre for lease, instead of sale, because of modest recent sales results and weak market conditions. But Mr Li denied that the leasing decision for part of the property was brought about by the sales result. He said the developer had planned to reserve the larger portion of spaces for long-term investment. About 50,000 sq ft of space in the property had been sold, which generated $200 million in revenue. The sales proceeds had 'already covered the development cost' of the project, he said. Average rents for the remaining 200,000 sq ft of space were pitched at $15-$20 per sq ft. The rate is higher than New Trend Centre in San Po Kong, where rents average $13-$15 per sq ft. However, Albert Lee, sales director for industrial properties at Ricacorp Properties, said it was hard to make a comparison, because the two projects were in different districts. 'There is no comparable property in Kwun Tong, because it will be the first one to be completed in the area,' he said. The 26-storey building, which will provide 240,000 sq ft gross floor area, is due for completion in July. 'We are negotiating with many potential clients, but no deals have been committed at this stage.' Mr Li said. However, he was optimistic about the leasing response because of the property's location and facilities provided. Yen Sheng Centre is at the junction of Hoi Yuen Road and Shing Yip Street, close to the MTR station in Kwun Tong. Some estate agents have cast doubts on the prospect of the composite property market, because there was a potential supply of up to 24 million sq ft in gross floor area coming on the market over the new few years. The cautious outlook on the sector affected the interest of developers' bidding in I/O sites at government auctions in the past financial year. Mr Li did not share this opinion. He said the actual supply of I/O space in the coming year was about two million sq ft, in 'five or six' buildings. Many projects were still in the planning stage, he said. Some had received approval from the Planning Department, but had not paid the premium. Whether the plans would materialise would depend partly on the market response to the forthcoming launch of several I/O buildings, he said. DEVELOPMENT: Yen Sheng Centre, 26-storey industrial/office building at Hoi Yuen Road, Kwun Tong. DEVELOPER: Lee Sang Investment Co. GROSS FLOOR FOR LEASE: About 200,000 sq ft. SIZE OF EACH FLOOR: 10,000 sq ft. AVERAGE rental: $15-$20 per sq ft per month. TOTAL GROSS FLOOR AREA OF DEVELOPMENT: 240,000 sq ft COMPLETION DATE: July 1995. AGENTS: C Y Leung & Co and First Pacific Davies. FACILITIES: The building will have its own canteens, and bank, a carpark on the lower levels for the tenants, three passenger lifts and three cargo lifts, satellite and cable television.