Signs of a recovery in office and retail rents and rising luxury residential rents are highlights of the year, according to property industry specialists. After rising steeply from 1991 to 1993, office rents went into free fall during 1994 but have started to turn the corner. Sam Whiffin, Pacific director of Jones Lang Wootton (JLW), said office rents rose by 1.1 per cent in the third quarter of this year on the back of lower supply, falling vacancy levels and improved sentiment on the economy. In the first nine months of this year, only 640,000 square feet of new office space was completed compared with 2.9 million sq ft last year. Vacancies fell significantly in Central and Tsim Sha Tsui. In the recently depressed retail sector, a spokesman for Richard Ellis said there were grounds for cautious optimism that improved consumer confidence and the entry of new brands and outlets were tipping the scales in favour of demand. At the luxury end of the retail sector, Lane Crawford showed its confidence earlier this month by opening its 3,500-sq-ft 'on pedder' store in Wheelock House, stocking a big selection of high fashion goods and accessories. Other positive signs included the continued expansion of established outlets, including those run by Dickson Concepts and Marks & Spencer. Despite the indications of a recovery, the retail sector was quiet in the third quarter with rents up about 1.1 per cent and capital values by about 2.9 per cent, according to figures from Jones Lang Wootton. Rising rents are a double-edged sword - great for landlords and bad for tenants. In the luxury and upper-middle residential markets, it is property owners who should be cracking open the champagne to celebrate current conditions. The recent Colliers Jardine report, 'Residential Rents on the Rise Across All Districts in Hong Kong', said between January and the end of August average gross monthly rentals on the Peak rose 6.9 per cent to just under $40 per square foot, and on Island South (which includes Stanley, Tai Tam and Repulse Bay) by 13.7 per cent to about $34. In Mid-Levels, Happy Valley and North Point, gross rents range from $22.60 to $42.90 per square foot. Average gross rents in Mid-Levels rose by 8.2 per cent in the year to August to $33.30 per square foot but the sharpest increase was in Happy Valley which soared 16.6 per cent over the same period to $31 per square foot. Average gross rent in North Point in August was $29.30 per month, according to Colliers Jardine. Signs of high demand for quality residential properties included the 400 people who signed up for prospective purchases of Swire Properties' Island Place - an oversubscription of seven times - and the 21 times oversubscription reported at the Regalia in Kowloon. In the serviced apartments sector, JLW reported strong demand for new properties in the $25,000 to $55,000 range which offered flexible lease terms. High occupancies were recorded in newly completed serviced blocks, including 2 Macdonnell Road, Broadwood Apartments and Orchid Valley. Part of the reason for strong residential rents is the supply situation. According to Rating and Valuation Department figures, current as of the end of the second quarter, there were 1,740 new class D and E (large) units scheduled to reach the market this year and 1,847 next year. About 70 per cent of this year's new supply was to be located in the New Territories, falling to about 55 per cent next year. The supply outlook for large residential units on Hong Kong island remained tight, with only 487 large residential units scheduled for completion this year.