OFFICE rents in Central have started to rise over the past few months as the market moves into an upward cycle. New supply in 1991 and last year was just over 11 million square feet, about the same as the the previous five years. Consequently, vacancies rose and average rents in Central fell from $67 per sq ft per month in mid-1989 to $44 per sq ft - with substantial rent-free periods - in the middle of last year. Competition between landlords was fierce and many tenants took the opportunity to move to new accommodation offering better terms. However, as the second half of the year is about to begin, average rents in Central are now over $50 per sq ft, and with Citibank Plaza now over 60 per cent let and the Entertainment Building being the only new building available. Large-space users are already short of options in Central. An alternative is to move to Wan Chai waterfront, but rents there are also close to $50 per sq ft and occupancies in the major new building, Central Plaza, are now over 70 per cent. A third alternative is to move to Times Square, in Causeway Bay, but this is also leasing quickly with attractive rents of $30 per sq ft on offer to larger tenants. There is very little new office space due for completion in Central in the next three years, and while a further two million sq ft is due in the Wan Chai/Causeway Bay area next year, most of this space is in small buildings which will not be suitable forthe large-space user. In Tsim Sha Tsui, there will also be a shortage of new space this year, although there will be some relief next year when the 1.3 million sq ft Gateway Towers project is completed. In response to the shortage of space in the established office locations, developers are building good-quality offices in decentralised locations. Swire Properties has a long-standing commitment to North Point and Quarry Bay. Its Cityplaza and Devon House projects are being successfully leased. Other developers have focused on Cheung Sha Wan, Kwun Tong, Sha Tin and Hunghom, and all are developing as secondary office centres. The response to this trend is quite marked with over half of the eight million sq ft of new office space due for completion this year in decentralised locations. And while a record 13 million sq ft of new office space is due for completion next year, only five million of this is in Central, Wan Chai, Causeway Bay and Tsim Sha Tsui. The total stock in these main areas is expected to rise by 14 per cent over the next two years to 75 million sq ft, while the increase in decentralised areas is forecast to increase 40 per cent to 33 million sq ft by the end of next year. The impact of this changing balance is likely to be that, while Central will always be the prime location, particularly for the financial and associated sectors, large space users will have to look seriously at splitting up their operations and moving the support services out of Central. There are significant rental savings in moving to decentralised locations, where rents are between $20 and $25 per sq ft, compared to over $50 per sq ft in Central. However, as the supply/demand imbalance becomes more marked, rents in Central are expected to rise substantially, perhaps up to as much as $100 per sq ft by 1995, and decentralised offices will be seen as an increasingly attractive alternative.