Grade-A office prices and rents are expected to fall 5 to 8 per cent next year because vacancies will be high, according to Ricacorp Properties. Ricacorp commercial sales manager Keith Lam Ka-on said the grade-A office market in the next five years would be greatly pressured by oversupply and the overall vacancy rate could exceed 15 per cent. Ricacorp research department said office supply between 2003 and 2007 would reach 12.46 million square feet, accounting for 22 per cent of total office stock in the market. Demand would be restricted by continuous business contractions among enterprises and a scaling down of expansion for multinationals due to unclear economic prospects, it said. New grade-A office supply next year would total 2.81 million sq ft. Two International Finance Centre in Central, with 1.95 million sq ft, would be the major source of supply. In 2004 and 2005, new supply would be 2.34 million sq ft and 2.83 million sq ft respectively. Supply in the two years would mainly be in non-core areas such as Wan Chai and Quarry Bay. From 2006 onwards, the estimated new supply would jump to 4.47 million sq ft. Major supply would shift from Hong Kong Island to Kowloon, with the majority of space coming from Kowloon Station phases five to seven, which would provide about 2.5 million sq ft. The government's Central Market commercial site could add further new supply in the coming years, it said. Meanwhile, office rentals in Island East had plunged to the level of industrial buildings and had pushed up demand substantially, Centaline Property Agency said. Centaline commercial district sales director Freddy Ho Tak-shing said 34 whole-floor leasing transactions took place last month, a rise of 30.77 per cent compared with September. Tenants in Citicorp Centre in North Point and 625 Kings Road in Quarry Bay rented more than 10,000 sq ft. He expected the non-core office market to recover much quicker than core Central and Admiralty because average rents had shrunk to attractive levels. For example, monthly effective rents for quality office space in Island East and North Point had sunk to less than HK$10 per sq ft. 'It's competitive [and similar to] the rentals of traditional industrial buildings,' Mr Ho said. He expected tenants from peripheral industrial buildings and office tenants in Causeway Bay, who were paying much higher rents, to relocate to Island East. He said cost-cutting companies would easily find suitable space in non-core areas because office rents in Central were double those in the non-core areas. Rental transactions last month soared 52.94 per cent to 182, compared with 119 in September, Centaline research said. Cumulative rented space amounted to 392,600 sq ft, up 49.05 per cent against September. Demand in Quarry Bay and Sheung Wan increased significantly and more whole-floor transactions took place.