With 1.3 million square metres of office space coming on to the market this year in Beijing and another 800,000 square metres in Shanghai, rents and prices are expected to remain subdued in both cities, according to a report from Chesterton Petty. At the same time, the Asian economic crisis has dampened sentiment among SAR and overseas firms, the report says. As a result, the sales and leasing markets in both cities are expected to remain sluggish, with prices and rents continuing to fall. In Beijing, much of the new supply is located in the Xicheng district, which has been earmarked as a future financial hub. The remainder will be located in the Chaoyang district and includes buildings like Onward Science & Trade Tower, Union Plaza and the Kerry Centre. The report says demand for the grade-A office space, which is driven primarily by overseas multinationals, will fall as the number of overseas firms setting up in Beijing is expected to decline 8.3 per cent this year. Domestic demand also is expected to stay low due to the slowing of the mainland economy. With demand stagnant and supply increasing, vacancy rates have hit 35 per cent, the report says. However, the growth of the private sector on the mainland should help slightly with take up.