Prime office rentals will increase a further 20 to 25 per cent by the end of the year due to strong demand and low vacancy rate, according to property consultant DTZ Debenham Tie Leung. Corporate real estate services department director Ben Duncan said vacancy rate for grade A offices had dropped to 7.5 per cent. The vacancy rate in Central declined from 10.6 per cent in the first quarter to 4 per cent, while in Island East, it fell from 5.2 per cent to 2.2 per cent. Mr Duncan said Hongkong Land, the largest commercial landlord in Central, was reported to have less than 2 per cent vacancy rate in its portfolio. He said International investment funds and local investors had expressed keen interest in the SAR's prime offices and quality sites in the first half of the year, adding that high yields achieved by most grade A offices was one key factor attracting foreign funds. DTZ said yields of prime offices had increased to 6 per cent, a 50 per cent rise from 4 per cent in 1997. According to the consultant, there will be a lack of new office supply in core districts until 2002. While most spaces in Central and Island East are almost fully occupied, tenants needing large spaces may relocate to Wan Chai or Causeway Bay. DTZ said the only new supply in the second quarter was the 301,000 square foot office tower on Site C of the Olympian City project in Tai Kok Tsui. Offices available for lease include two existing projects - Tower Six of Gateway II owned by Wharf (Holdings) in Tsim Sha Tsui and the lower block of Grand Millennium Plaza, developed by New World Development, in Sheung Wan.