Foreign investors may move in as vacancy rates hit four-year low Increasing office rents will lure more foreign investment into the sector, according to property consultant Jones Lang LaSalle. Rents for Hong Kong grade A office space will jump by as much as 35 per cent next year due to the lowest vacancy rates seen since 2000, the company projects. 'An increase in rental yield will fuel foreign investment activities and push up office transactions,' Jones Lang LaSalle managing director Fung Kin-keung said. Mr Fung said the Central office vacancy rate - which dropped to 7.3 per cent in the fourth quarter from 8.6 per cent in the third - was nearing a 'frictional' vacancy level associated with normal turnover. The office vacancies rate stood at 6.8 per cent in 2000, the height of the technology bubble when demand for space was strong. The consultant said office rents in Island East had edged up 6.2 per cent since September while vacancies stood at 13.6 per cent - the highest among major Hong Kong business districts. 'It will still take some time for rent in non-core office areas to pick up, but rents have already started to increase, albeit at a slower pace than in core areas,' Mr Fung said. Kenneth Tsang Ky-sung, Jones Lang LaSalle's Greater China market head of research, said high investor expectations and a drop in the supply of Central office space had boosted office sector investment over the past 11 months. Office transactions came to $9.63 billion in the year to last month, compared with $1.72 billion for the whole of last year. 'The market will enter a window of short supply between 2005 and 2006, with new [office] supply concentrating in decentralised areas,' Mr Tsang said. Property consultant Colliers International said current effective rents for office space in Island East, which factors in incentives such as initial rent-free periods offered by landlords, were $12.69 per square foot per month, compared with $11.96 three months ago. Effective rents in Central have increased to $32.32 per square foot per month, from $27.54 in September. Simon Lo Wing-fai, a director with Colliers International research department, estimated the current capital value of Central office space about $14,000 per square foot, up from $12,000 per square foot three months ago. 'We have seen increasing interest in the office sector from foreign investors in the past few months. While some of the more opportunistic funds are eyeing appreciation of capital value, most of them are considering both the potential increase in office rent and capital value,' Mr Lo said.