Sino Land's $1.82b site outlay spurs demand in sector and more gains are expected The $1.82 billion Sino Land paid for a Kowloon Bay commercial site at an auction last month has propelled office prices and rents. Analysts expect prices for grade A office space and rents would rise by as much as 15 per cent by the middle of this year. They attributed increases of up to 50 per cent in the asking price for some offices in Kowloon Bay to the impact of Sino Land's aggressive auction bid - almost tripling the reserve price - and the limited office supply. Patrick Chow Moon-kit, the head of research at Ricacorp Properties, said: 'The sky-high price for the commercial site at Kowloon Bay has triggered speculation on grade A office prices.' He expected a 10 to 15 per cent increase in office prices and rents within three months. Grade A office prices in Tsim Sha Tsui recorded the biggest rises last month. An office at Lippo Sun Plaza was sold at $7,103 per square foot, 20 per cent higher than market prices and was also the highest for that type of office since 1997. Offices in Central, Admiralty and Sheung Wan were also in demand and were 5 to 8 per cent more expensive to buy last month. Grade A office prices were up an average 5.4 per cent last month compared with January, while rents rose 6.1 per cent, according to Ricacorp. But one office at Lippo Centre, in Admiralty, which was rented at $14 per square foot in 2002, was now fetching $22 per square foot - 57 per cent higher. Property consultants have said office rents and prices could rise up to 30 per cent this year as supply dwindles in coming years to the lowest level since 1987. This month, accounting firm Deloitte Touche Tohmatsu soaked up a large slab of prime space, signing a 10-year agreement with Swire Properties to become the biggest tenant of Pacific Place in Admiralty. The deal - the largest for grade A offices in the central business district in 18 months - gives Deloitte 148,000 square feet over seven floors in Pacific Place 1. The rising values have confirmed analysts' views that the Kowloon Bay deal would sweeten prospects for the property market. The $1.82 billion price comfortably exceeded consensus estimates of between $842 million and $1.12 billion, and was nearly three times the reserve price of $608 million. Mr Chow said that as contracts signed during Sars-affected 2003 gradually expired, landlords had raised rents. Centaline Property Agency sales director Freddy Ho Tak-shing expected a bigger rise in office prices and rents for the second quarter. 'Many companies, whose financial year ends on [Thursday], will soon release new budgets for the coming financial year. Some will then consider renting or buying new offices,' Mr Ho said. He predicted office vacancy rates in the central business district would fall to about 5 per cent, compared with 8 per cent now and 9 per cent three months ago. Mr Ho said some landlords in east Kowloon had withdrawn their offices from sale and were waiting for higher prices. 'Before Sino Land's deal, office prices in the area were about $2,000 per square foot; now some are selling them at $3,000 per square foot,' he said. Mr Ho said empty offices at Cyberport and in Swire's Island East complex, where rents were comparatively lower, were becoming more attractive. Even in Tung Chung, where office prices have been flat, interest would increase after Disneyland opened. Meanwhile, 140 shops in Causeway Bay's Red Mall shopping centre were sold out in three days last week by Midland Realty (Holdings).