ABOUT 12 months ago, the Hong Kong property market began to turn, with the office rental market starting to show signs of life while the mass residential market reached the end of 15 months of frantic activity. The outlook for the office market at the beginning of 1992 looked grim, with a record 11 million square feet of new space forecast for completion in 1992 and vacancies of up to 13 per cent in secondary locations. However, by mid-1992 it was clear that the major buildings, Great Eagle's Citibank Plaza, Sino Land/Sun Hung Kai/ Ryoden's Central Plaza, and Swire's Devon House were filling up quickly, and landlords in Central started to raise their asking rents. By the end of the year, record take-up of around five million square feet, double the average, had been achieved, and with high take-up continuing in 1993 rents continued to rise. By mid-1993, this was firmly a landlord's market with Devon House fully let and asking $28 per sq ft for phase two to be completed in 1995, Central Plaza 80 per cent let at monthly rents of up to $54 per sq ft as compared to under $30 in the early phases, and Citibank Plaza also 80 per cent let at similar rents. The last major project to come on stream in the urban area is Times Square, but, with the first tower being fully leased, the second is now being offered at rents of over $30 per sq ft. In 1994, the only major office building to be completed in the urban area will be Wharf's Gateway Towers in Tsim Sha Tsui, and this is expected to set new rental levels for Kowloon. In the retail sector, major new supply in the next 12 months will be in the Causeway Bay area. With Caroline Centre, Windsor House and Causeway Bay Plaza Two being almost fully leased, demand for space in Times Square is already high, and the forthcoming extension to Sogo, and Sun Hung Kai's future refurbishment of World Trade Centre are expected to be well received by the market. Competitive rents and the further strengthening of Causeway Bay's position as Hong Kong's premier retail location are the main attractions to tenants, and shoppers appreciate the convenience of having a large range of goods available in one convenient location. The mass residential market underwent a mild consolidation in the second half of 1992, but started to recover in second quarter of 1993. However, further tightening up of bank lending is expected to stabilise prices, although popular developments such as Cheung Kong's South Horizons on Ap Lei Chau, Laguna City in Lam Tin, and various developments in Yuen Long, Sheung Shui, and Ma On Shan by Henderson Land, Sun Hung Kai and Sino Land respectively are also expected to be in popular demand. The most active sector over the past three months has been the luxury residential sector, with prices rising by up to 25 per cent on the south side of Hong Kong island and parts of the Peak and Mid-Levels on the back of strong rental increase. Swire's Robinson Place was heavily over-subscribed when the first phase was marketed recently, and Lai Sun's 37 Repulse Bay Road has also been well received. Both these developments mark a new trend towards smaller units, generally 1,000 to 1,200 square feet, in modern well-appointed blocks. In terms of forthcoming developments, the majority of new office schemes will be small scale with virtually no space due for completion in Central before 1997. The majority of new space will be located in decentralised locations and this is expected to encourage the movement of office users to more remote areas where rents are, and will continue to be, significantly lower than in Central. David Faulkner is a partner with Brooker Hillier Parker.