DESPITE the economic slowdown, there are signs that local businesses will require more office space over the next three years. A study released recently by the research department of international estate agents Colliers Jardine says office take-up in the territory should at least match the 2.2 million square feet of annual take-up recorded by the Government's Ratings and Valuation Department for 1994. The report said the amount of occupied office space might even go as high as five million square feet - a level which has not been achieved since 1993. Despite widespread forecasts of a possible influx of mainland corporations seeking office space after 1997, Colliers Jardine makes its own forecast of rising demand without factoring in future demand from Chinese companies. The study looked at how international capital flows affected the take-up of commercial property in Hong Kong. Research showed that six factors had a high correlation with office take-up activity. These included Chinese inflationary pressures, the relative value of the yuan against the US dollar, Hong Kong's real interest rates, the year-on-year change in pledged foreign investment on the mainland and the percentage change in foreign investment actually spent or utilised in China. The researchers found that as inflation rates in China climbed higher in 1992 and 1993, investors sought a safe haven for their money with many investing in the Hong Kong property market. The research team found that there was more than five million square feet of take-up in 1993 when inflation across the border was increasing in leaps and bounds. Today, just the reverse is true. 'With falling inflation this lessens the incentive for new money to come into Hong Kong,' the report said. The result is lower property services and lower financial employment levels, all of which have dampened take-up levels. An appreciating yuan also acts as a dampener on the local property market, providing mainlanders with less of an incentive to hedge their investments against depreciation by buying Hong Kong property. The Colliers Jardine team also found a high positive correlation between both pledged foreign investment and the actual amounts of foreign dollars spent. 'Since 1984, office take-up in Hong Kong has very closely tracked both the change in pledged foreign investment in China and the percentage change in utilised foreign investment,' said the report. The study concluded that as foreign investment in China changed, it would affect the number of people needed in Hong Kong to service that foreign investment. By the same token, the authors warned that increasing levels of foreign investment in the future would not necessarily translate into more office take-up for Hong Kong as it did in 1993 and 1994. 'Major Chinese cities continue to improve their residential and commercial stock and business infrastructure and people working in foreign investment projects will find it easier to live and work in China as opposed to Hong Kong,' said the report. Finally, the study found a very high inverse relationship between office take-up in Hong Kong and interest rates. As real interest rates go up, the take-up drops. The Colliers Jardine research team concluded that with increased levels of foreign investment expected in China in 1996 - amounting to US$42.7 billion - an increase in office take-up in the territory could be expected next year. 'As international money flows and real interest rates continue to influence the local economy, the macro-economic factors suggest that demand for office space will lie between the present levels and those recorded in 1992 and 1993 over the medium term,' said the report.