New office supply hurt first-half earnings at Great Eagle Holdings and the owner of hotels and commercial properties expects profits to deteriorate further. The company said yesterday earnings dropped 42.67 per cent to $144.68 million in the six months to June. It remained cautious about prospects for the office market for the remainder of the year. Deputy chairman and managing director Lo Ka-shui said leasing activity had picked up after rents dropped to their lowest levels in more than a decade, but there were no signs of increased demand from the financial sector. 'The overhang of new office supply will keep a lid on rental rates for the remainder of the year,' Mr Lo said. 'There should be further downside in the rental income of our office properties as we remain in a negative rental reversion cycle.' Turnover fell 8.25 per cent to $1.11 billion. Earnings per share dived to 25 cents from 44 cents previously. The company's interim dividend was lowered by 40 per cent to three cents per share. Income from rental properties dropped 14.5 per cent to $250.3 million from $292.7 million a year ago. 'Induced by the attractive low rent rates available in the core areas, bargain-hunting activities by tenants from peripheral areas have been on the increase,' the company said. Tenants are taking advantage of the downturn in the commercial property market to negotiate better lease terms and relocate offices as developers chase customers to fill up spaces. Sun Hung Kai Properties is hunting for tenants for its newly completed 88-storey office building, Two International Finance Centre, which has about two million square feet of gross floor area that needs to be let. Great Eagle said the Sars outbreak had also hurt demand for office space. Occupancy of office space at Citibank Plaza in Central was 86.5 per cent by the end of June, while the rate for Great Eagle Centre in Wan Chai was 93.4 per cent. The company said its hotels in Hong Kong were hit by the Iraq war and the Sars outbreak but their operations should improve in the second half. It also expected an improvement in overseas hotels. During the first half, revenue from its Hong Kong and overseas hotel operations fell 7.2 per cent to $661.42 million. Great Eagle has seven hotels worldwide, including two in Hong Kong.