The booming financial sector and sustained economic growth have fuelled business expansion from local and multinational companies, driving up office rents. Mark Bernard, executive director of commercial agency Knight Frank, said strong demand from companies in the financial sector had absorbed most of the available prime office space this year. He said Hong Kong commanded the second highest office rents in the world after London's West End, and this trend was expected to continue as Hong Kong benefited from the mainland's economic boom. Investment banks and financial institutions have mainly contributed to the take-up of prime office space in Central where vacancy rates are low at 1.8 per cent, according to Knight Frank. Rents range from an average of HK$90 per sqft a month for traditional grade-A office space to an average of HK$150 per sq ft a month for premium grade-A space in the district. Prime buildings, such as Chater House, AIG Tower, Two IFC and Cheung Kong Center, command the highest rents in the city. Mr Bernard said with supply scarce, smaller pockets of space that became available in Central were quickly being taken up by the increasing number of new hedge funds setting up office in Hong Kong. For instance, The Blackstone Group recently relocated from One IFC to Two IFC and took up additional space there. Lee Wee-liat, head of research for Greater China at Jones Lang LaSalle, said overall grade-A office rents in Hong Kong had increased by about 12.4 per cent in the first nine months of this year. Those in Central outperformed the market and grew by 21.2 per cent. He estimated that companies had absorbed more than 2million sqft of office space so far this year for their expansion and consolidation requirements, which already exceeded the average take-up of 1.6million to 2million sq ft a year over the past few years. He forecast that the number of new offices will increase significantly next year which may create pressure on office rents, particularly those in non-core business districts. But office rents in Central should remain firm thanks to the tight supply within the core business district, and should be least affected by the increase in new office completions elsewhere across the city, he said. Peter Chan Suk-chung, director of the commercial department at Centaline Property Agency, said the increasing number of newly incorporated companies in Hong Kong also boosted demand for office space, especially prime properties in Central and the surrounding areas such as Sheung Wan and Wan Chai. 'There is basically no supply of new office buildings coming on stream in Central. At the same time, several old properties, such as the Luk Hoi Tong Building, are going to be pulled down for redevelopment. This will further strain the stock of office properties available for lease there,' he said. However, the trend of decentralisation was picking up pace as cost-conscious companies, and those looking for larger floor space, turned their attention to new office buildings in non-core districts such as Quarry Bay, Kwun Tong and Kowloon Bay, he said. 'New office buildings are springing up in decentralised locations such as Kwun Tong and Kowloon Bay. 'The building specifications and facilities of these intelligent office towers are often better than many existing grade-A buildings in core areas and their landlords are offering competitive leasing packages to draw tenants,' Mr Chan said. Mr Bernard said office space was so tight that financial institutions in Central were looking at opportunities outside of the traditional business district for the expansion of their operations. A prime example of this was Morgan Stanley's recent deal to lease up 10 floors at the International Commerce Centre (ICC), which is under construction in Kowloon Station. DBS Bank was also committed to relocating its operations to One Island East in Quarry Bay, taking up around 220,000 sq ft of space in the new building. 'Another trend we have seen is that companies outside of the banking and financial industries are looking at space outside of Central not only due to expansion needs but as a result of stratospheric rents in the district. Not every tenant has the means or is willing to pay high market rents in Central,' Mr Bernard said. 'In fact, tenants who leased space in 2004 and 2005 with upcoming rent reviews are faced with markets rents that are close to double what they are currently paying. 'This has resulted in some tenants relocating out of the core Central area to reduce exposure to high rental costs.' He said some companies were not only relocating out of Central but also from other districts on Hong Kong Island such as Wan Chai, Causeway Bay and Island East. While rents in these districts averaged about 40 per cent to 70 per cent lower than in Central, companies operating there came from industries as diverse as accounting, advertising, trading and the like. They tended to be more cost sensitive compared to banks and other financial institutions. 'While rents are not as high as in Central, the comparative rate of growth in rents has also been significant and has more than doubled since 2004,' he said.