Hysan Development, the biggest commercial landlord in Causeway Bay, expects the office rental market to remain under pressure as rates have fallen more than 50 per cent in the past three years. Managing director Michael Lee Tze-hau said office rental rates, which accounted for 45 per cent of the group's turnover, only returned to the pre-Sars level when new leases came up for renewal - normally after three years. He said rates on office leases signed in the first half were 15 to 20 per cent higher than those signed late last year, and the occupancy rate of its office portfolio was 97 per cent. 'Despite the office market being on the recovery path, rents have fallen more than 50 per cent for the past three years and it will take time to pick up,' he said. Hysan said gross rental income fell 5.7 per cent to $559.8 million for the first six months, mainly due to a 23 per cent drop in office rental income. Retail rental accounted for 38 per cent of total income and the rest came from residential rental. The developer owns the AIA Plaza and the Hennessy Centre, as well as Lee Gardens One and Two in Causeway Bay. Andrew Lawrence, an analyst at Deutsche Bank, wrote in a research report that Hysan's office-rental performance was likely to lag that of the overall office market because Causeway Bay was losing its appeal among office renters. 'Hysan's ability to upgrade its existing office portfolio appears limited by the lack of additional gross floor area available on existing sites, and moving into a rental upswing will make the timing of any redevelopment more difficult to justify,' he wrote. But Mr Lawrence said Hysan would benefit from the overall improvement in market rents. Mr Lee said retail rental rates had risen by up to 40 per cent from 2001. 'The group's retail properties were virtually fully let. The re-opening of the upgraded Lee Gardens Two made a significant contribution to the 7.5 per cent increase in retail rental levels,' he said. Hysan yesterday announced that its profit rose 23.89 per cent year on year to $304.88 million for the six months to June. This included a write-back of $41 million for two completed projects in Singapore and a $14.6 million securities disposal gain. Hysan shares fell 0.74 per cent to close at $13.30 yesterday.