SOARING office rents could pose a threat to Hongkong's status as the favoured regional headquarters for multinational companies. High rents for office space are causing many multinationals to reconsider where they will establish head offices in the region. Office rents have seen big increases during the first half of this year. Hongkong is the second most expensive city in Asia after Tokyo to rent office space. Rents are reaching $60 per square foot in Central and rising. This is in sharp contrast to most other areas in the region, where an oversupply has caused rents to fall significantly. Tokyo may still be the most expensive city, but increasing vacancy rates and falling rents mean that the gap between it and Hongkong is narrowing. ''Japan is opening up as a realistic alternative for corporations looking for a site for their regional office,'' said Vigers' director Bruce Walker. ''Prime space in Marunouchi can be found for $80 to $90 per sq ft, which is unusually low. And elsewhere it is even cheaper. ''Grade A new offices can be leased for $20 to $30 per sq ft in Ikebukuro, Shinjuku and Shibuya.'' Because of the state of the Japanese economy, and over-building, the vacancy rate is high and growing. Rents in other Japanese cities are even lower. Offices in Rinku, the town built next to Osaka's new airport, can be rented for as little as $20 per sq ft. But Japan had its drawbacks, even with its excellent infrastructure and falling rents, according to Peter Churchouse, principal head of research at Morgan Stanley. He said Japanese culture and the way of doing business in the country was difficult for non-Japanese companies. ''Many companies have moved most non-Japanese business out of Tokyo for this reason,'' said Mr Churchouse. He added: ''Financial aspects, such as taxation, still make Japan costly.'' In Singapore, Hongkong's major rival for multinational companies, rents are down by 45 to 50 per cent, from their peak three years ago, according to Jones Lang Wootton's research department. Grade A offices in prime districts can be leased for S$5.50 (about HK$26.20) per sq ft and, with high vacancy rates in Singapore and a tight supply in Hongkong, the rental gap is likely to widen. Kuala Lumpur and Bangkok have prime office rents that are considerably lower that Hongkong's. Although an active market in Kuala Lumpur has caused rents to rise, average prime space is around $14 per sq ft, according to Jones Lang Wootton; still considerably lower than Hongkong's decentralised office space. In Bangkok, rents are $13 per sq ft, and are predicted to fall. One of Hongkong's advantages as a regional centre is its location; on the edge of the booming and potentially enormous China market. As China continues to modernise, so the supply of prime offices of a standard suitable for international corporations will increase. A shortage of such property ensures that rents remain high, ranging between $21 per sq ft in Shenzhen to $30 per sq ft in Shanghai, and $33 per sq ft in Beijing. These are comparable with rents in Tsim Sha Tsui and decentralised offices. The inconvenience of operating in China, together with the lack of adequate facilities for staff, makes it unlikely that many companies will consider moving to China at this stage. Mr Churchouse estimated that, because of the lack of infrastructure, it would be at least 15 years before companies chose China as a regional head office. He said: ''Rents are not a multinational's prime consideration, but [if they rise too high] they could be the straw that breaks the camel's back.'' Apart from rents, Mr Churchouse said that there were many other factors that would determine the location of a regional headquarters. ''Legal systems, security, taxes, language, education for children of expatriate staff, infrastructure, even whether the chairman wants to live there - all have to be taken into account.''