Average rents of prime street shops increased 4.9 per cent in the first quarter, while prices rose 3.5 per cent, compared with the previous quarter. FPDSavills said prime shopping-centre rents remained unchanged during the period. Major retailers continued to show keen interest in establishing outlets in prime locations, but extremely tight availability capped expansion plans. Higher rental growth expectations for prime retail premises, as well as consecutive interest-rate cuts, had combined to attract investors, driving street-shop prices up, the consultant said. There was a divergence in rents between prime shops and less prominent centres as a result of intensifying competition between shopping centres, it said. The trend was forcing landlords to explore new ideas to keep their centres attractive. According to Rating and Valuation Department statistics, the supply of private commercial premises hit a 10-year low last year while take-up continued to grow, reaching a 10-year high of 2.07 million square feet. At the end of last year, vacancy rates dropped to 7.5 per cent, down from 9.2 per cent at the end of 1999. Although strong take-up was noted last year, FPDSavills said it adopted a more conservative outlook for the market this year, due mainly to softening global economic growth. Analysts already had reduced their outlook for gross domestic product growth and government statistics revealed some unfavourable economic fundamentals. The uncertain economy, as well as the highly volatile stock market, also might slow private consumption and delay retailers' expansion plans, FPDSavills said. Recent Beijing-Washington tension also might dampen investment sentiment. Meanwhile, Chesterton Petty said overall leasing activity in the retail sector continued to slow due to the more modest growth in consumption. Vacancy rates on prime streets in popular retail areas remained under 5 per cent. A gloomy view regarding the near-term prospects of the retail market among retailers, as reflected by the lack of leasing activity, particularly among clothing chain stores, might lead to higher vacancies later in the year. Monthly rentals of retail shops in prime locations remained stable, ranging from HK$200 to HK$600 per sq ft, Chesterton Petty said. The market was dominated primarily by investors who were trawling for bargains and the apparent lack of such properties reduced sales activity. Market yields of prime retail properties continued to range from 7 per cent to 9 per cent, due to stable prices and rents. 'Owing to the lingering cautious attitude among consumers, retail spending will continue its slow recovery, which in turn restricts growth in leasing activity,' Chesterton Petty said. Consequently, prime locations would remain in demand while secondary areas would still suffer from higher vacancies, it said. Retail property sales were not expected to register any significant improvement as investment sentiment remained weak. Despite the relatively soft market conditions, both shop prices and rents in prime locations would remain stable in the next few months, the property consultant said.