The depreciation of Japan's yen may hit real estate demand in Hong Kong, warns property consultant Jones Lang LaSalle. The currency has lost about 10 per cent in value against the United States dollar in the past two months to hit a three-year low, triggering concern among politicians and economists. In a market analysis, Jones Lang LaSalle said the depreciation in the yen might cause competitive depreciation among other Asian countries. This, in turn, could result in higher real estate costs in Hong Kong relative to other Asian markets, it said. Cost comparisons, with the US dollar as the base, would show Hong Kong as relatively more expensive if Asian currencies depreciated, said the property consultant. 'Other things being equal, this may have an adverse impact on the demand for real estate from international investors and occupiers in Hong Kong,' it said. The market analysis pointed out that the Hong Kong dollar link with the US dollar made real estate costs rigid, lacking adjustment through currency fluctuations. Jones Lang LaSalle gave as an example the Asian financial turmoil in 1997-98, when office rents in Hong Kong declined more than those in some other Asian cities in local-currency terms, but the drop in US-dollar terms was less than its rivals. Recent surveys also revealed Hong Kong had become more expensive relative to other Asia-Pacific centres. DTZ Debenham Tie Leung said Hong Kong was ranked the second most expensive city at the end of last year, up from third place at the end of 2000. Although Hong Kong last year saw a 29.35 per cent decline in occupancy costs, including office rents and outgoings, to average US$74.80 per square foot a year, it still overtook Tokyo's outer area, which recorded a 45.2 per cent drop to US$61.80 per square foot, the DTZ survey showed. Tokyo's central area remained the most expensive in the region despite a 32.4 per cent fall last year. Hong Kong's global ranking was fourth last year, up from fifth in 2000.