Hong Kong should brace for further deterioration in retail property prices, due to the economic downturn and the heavy supply of new shopping arcades coming on stream, analysts said. In view of the slowing economy and subdued sales, a further decline of 10 to 15 per cent was possible over the rest of this year, they said. Property consultants Sheraton Valuers director Lawrence Wong said the effects of Asia's economic turmoil - increases in interest rates and tighter credit - had taken its toll on the Hong Kong retail property sector, causing rents and prices to drop sharply in the past six to seven months. He said sales activity had fallen 90 per cent from its peak last year, with values down 40 per cent. The leasing market faced a decline in demand for space from international and local retailers, who had suffered from a drop in local consumption and tourist spending. Mr Wong said rents in retail shops saw a 30 per cent drop from the peak last year. He said local consumers' confidence could be further hit following the recent bearish forecast by the Organisation for Economic Co-operation and Development of 0.9 per cent GDP growth for Hong Kong this year. The decline in local consumption would further hit demand in retail spaces, he said. While demand for space was declining, analysts said the market would see an increasing number of shopping malls that had been completed or were soon to be completed. The supply would increase vacancy rates and put pressure on rents, they said. Midland Realty anticipated that the vacancy rate would increase to 15 per cent this year, against 10.6 per cent achieved at the end of 1997. The retail spaces include shopping arcades in residential projects, such as the commercial space in housing project Discovery Park, in Tsuen Wan, and arcades in Kingswood Villas, in Tin Shui Wai. Swire Properties and Citic Pacific are building a large shopping mall - Festival Walk - in Kowloon Tong. But Midland Realty's assistant director Raymond Kwok said rents in retail properties would see stabilisation this year. Retail rents have dropped about 35 per cent since the October economic turmoil in Asia. Rents would not see another drastic decline, he said.