Average effective rent in Central hits record high at HK$74 per square foot Hong Kong's gradeA office market continued its three-year rally with average net effective rents in Central hitting HK$74 per square foot, leapfrogging Tokyo to become Asia's most expensive city for office rentals, according to DTZ Debenham Tie Leung. This represented an increase of 9 per cent from the previous quarter and 25 per cent from the beginning of the year. It is also almost 3.5 times its low of HK$21 per square foot seen during the Sars period in 2003. 'Landlords who have large office blocks in this most coveted business district are not surprisingly able to command a larger premium in rents,' said executive director David Watt. 'As availability in Central continues to dwindle and while financial firms are keen to stay in Central in view of the sustained economic growth, Central's landlords can easily find companies willing to pay their asking rents.' Rents in some units of top-end buildings such as Two IFC have topped HK$100 per square foot. Boosted by strong demand from the financial, insurance, real estate and other professional services sector, Central's vacancy rate fell to 4.2 per cent in the third quarter of this year, representing a drop of 0.9 percentage point from the previous quarter and 2.8 percentage points from a year ago. But Mr Watt believes that the normal decision-making process of leasing offices in Central may be prolonged as rents rise. As rents approach HK$100 per square foot, rental expenditure will become more crucial when making leasing decisions, he said. Average net effective rents in Wan Chai and Causeway Bay remained stable at HK$36 per square foot, while in Island East it rose 4 per cent from the previous quarter to HK$27 per square foot with some top-end office buildings there fetching more than HK$30 per square foot. Knight Frank said investors now are eyeing secondary locations with good potential and relatively higher yield, especially gradeB offices and industrial buildings. 'Investors are looking for en bloc properties for change of use or upgrading. The end of the rising interest rate trend definitely boosts their appetite,' said executive director Alnwick Chan.