The office property market is suffering its worst crisis since the early 1980s, with vacancy rates expected to rise to near record levels within 18 months. Vacancy rates for the overall market are anticipated to reach 20 per cent by the end of next year - just short of the record high of 20.6 per cent hit in the early 1980s, analysts forecast. Even prime office buildings in the core Central business district are not being spared, with vacancies tipped to more than treble from 3 per cent to 10 per cent, the highest level since the 13.2 per cent rate in 1983. Some grade-A office rents which have tumbled by 30 per cent or more are expected to fall further and some analysts believe the magnitude of decline could surpass the 50 per cent correction registered in the early 1980s crisis. Analysts said that with an estimated 10 million square feet of new space coming on to the market between now and the end of 1999, and with economic growth expected to contract by 3.5 per cent this year, rents could only continue to tumble. Vickers Ballas property analyst Herbert Lau Chung-kwan predicted further rental cuts of as much as 15 to 20 per cent across the board in the grade-A market. Analysts said the downturn in the property market was in some respects unique and unprecedented. Some have likened it to London's Canary Wharf in the late 1980s, when new offices stood vacant for years before tenants moved in. Hamptons International's Hong Kong manager, Antony Fung, said incentives being offered by Hong Kong developers, such as rent-free periods, were used to attract tenants to move into the London Docklands area. 'It was not until about 1993 when major tenants, starting with the Fleet Street newspapers, moved in,' Mr Fung said. 'At the time, [developers] were offering tax-free rates and two-year rent-free periods for 10-year leases.' In the early 1980s, Hong Kong businesses rallied from the stock market crash and went into expansion mode, taking up much of the supply which had come on to the market and the excess supply in about three years. However, today the malaise lies not just with the stock market, which has plunged by more than 50 per cent from its peak last year. There is a general perception that the economic woes affecting Hong Kong are long term and it will take the property market a lot longer to recover. Most analysts and property agents agree that unlike the earlier downturn, businesses are preparing to wait out a prolonged economic slump which the most bearish of analysts say could last three to four years. Morgan Stanley (Asia) managing director Peter Churchouse estimated that vacancy rates for the whole market were as high as 14 per cent. According to Ken Li, associate director of commercial with Vigers, few companies are increasing floor space and many are closing down. Agents said some international companies were resettling in Singapore, leaving only a skeleton staff in the territory leasing a fraction of their original space. Many Japanese and Korean companies, particularly in the financial sector, had cut back or had simply left town as a result of the regional economic crisis, they said. Few entrepreneurs, the embodiment of the 'can-do' attitude that has defined Hong Kong's economic miracle, are striking out on their own any more to start up businesses. 'A lot of senior executives used to come to us looking to lease space in order to start their own business,' Mr Li said. 'We haven't seen those sorts of people for a year or so now.' Mr Lau of Vickers Ballas said the onslaught of new grade-A supply was of 'epic proportion'. Even considering that developers will probably postpone or defer many of the later projects, Mr Lau and other analysts doubt that given the severity of the economic downturn, business can absorb the vast amounts of new space coming on to the market. Lehman Brothers senior vice-president Michael Leary said: 'The big question is whether or not the demand will mitigate the new supply. 'At this moment we don't think so,' he said. 'There is the possibility that demand forecast will have to be revised in light of the economic downturn.' As a result, landlords are bracing for the long haul, cutting rents and increasing rent-free periods in order to keep their existing tenants and attract new businesses to their buildings. Some landlords are offering ample rent-free periods on lease renewals. ING Barings property analyst Johnny Wong Kin-man said: 'We are seeing rents fall at an accelerating level.' 'If everyone is building more space and no one is expanding then the landlords are all chasing after the same people,' he said. Last week it was reported that Goldman Sachs would lease five floors in the nearly completed Cheung Kong Center in Central at an effective rent of between $35 to $38 per square foot. Not too long ago those were the kinds of rents being charged in Wan Chai, one analyst said. In South West Tower, being built on the Central waterfront, analysts said Sun Hung Kai Properties had signed ING Barings at 10 to 15 per cent below the market rate. Agents said rents for strata-title spaces in Central, which have come off by as much as 40 per cent since the beginning of the year, would continue to slide. In Quarry Bay, overall rents have fallen by about 15 per cent so far this year and analysts said they would not be surprised by a further 10 to 15 per cent reduction. The overall vacancy rate in Quarry Bay was estimated to be 18.4 per cent at the end of last year. With a large amount of new spaces completed in the area this year, Vickers Ballas said vacancy could reach 32 per cent by the end of the year. Analysts believe supply in Quarry Bay amounted to two million square feet this year. Vacancy rates, especially for older buildings in decentralised areas like Wan Chai, Causeway Bay and North Point would rise to above the average 20 per cent level, analysts said. In Tsim Sha Tsui, vacancy rates are expected to rise slightly from between 8 and 9 per cent at the end of 1997 to about 9.3 per cent. Analysts said developers were likely to shelve or slow down the progress of their projects slated for development from 2000 to avoid the plight in the office sector.