GROWTH IN MACAU'S office market lags the residential sector and the retail market, which are both experiencing a boom. There is a limited stock of grade-A office buildings on the market as government departments and private companies absorb most of the space in the city centre's old buildings. Rents for grade-A offices are in the region of $13 per sq ft to $14 per sq ft a month while grade-B offices lease out at a rate of $8 per sq ft to $9 per sq ft, according to Gregory Ku, the managing director of Jones Lang LaSalle's Macau office. Simon Smith, senior director of research and consultancy with Savills (Hong Kong), described Macau's office market as highly segregated. He said many office buildings were half empty but a handful of top-quality buildings were achieving high occupancy and rental growth. He cautioned that changes in offshore company policies implemented last year might have a negative impact on the growth of the market. The Macau government has tightened restrictions on offshore companies since June last year, now allowing only eight types of offshore company to operate in the city, a reduction from 20 previously. And under regulatory changes, companies involved in packaging, customer services, document services and trade consulting no longer qualify for the favourable tax scheme introduced in 1999. The change in government policy was expected to slow the growth of the number of offshore companies in Macau and affect office demand, Mr Smith said. He added that there were about 500 offshore companies in Macau and about 80 per cent of them were from Hong Kong. Investment interest in Macau's office development has been generally unexciting over the years as most developers focus on residential projects. Mr Ku of Jones Lang LaSalle said there was a lack of top-grade offices and demand would pick up with the sustained economic growth in coming years. Developers were beginning to show a stronger interest in office projects, with at least two major grade-A developments being planned in the Nam Van Lake district providing about a million sq ft of space, he said. Pioneer Group, US banking company Wachovia and a property fund run by Morgan Stanley are refurbishing the 22-storey Macau Gateway, which will provide 80,000 sq ft of prime retail space and 300,000 sq ft of grade-A office space. A Macau developer also plans to build a 600,000 sq ft office tower in the district. Unlike the office market, retail property prices had rallied as a result of the increases in tourist arrivals and retail consumption. Mr Ku said investment interest in the retail sector was concentrated on a few popular streets in NAPE, Sao Domingos and Costa areas with a limited stock of quality shops available. 'Current selling prices of prime shops in these areas are above $10,000 per sq ft while the best properties in Sao Domingos sell at $20,000 per sq ft or more.' To cope with its fast-growing economy and tourism-related developments, Macau is planning a series of infrastructure projects, including the Hong Kong-Zhuhai-Macau Bridge and a light rail system linking Macau Peninsula, Taipa and the airport.