Property consultancy Colliers International has forecast a slackening in rental growth at Hong Kong's grade A office premises and a widening gap in rental rates between core and non-core areas as supply increases. Meanwhile, a survey by fellow consultancy DTZ found Hong Kong to be the second-most expensive business location in the world after London's West End. 'The new supply cycle will be a challenge for the whole grade A office market,' said Piers Brunner, the managing director at Colliers. Mr Brunner expects growth in rental rates to slow to 3 per cent and growth in sales prices to ease to 15 per cent, as an estimated 2.9 million square feet of office space comes on stream in East Kowloon this year. Leasing transactions for grade A premises climbed 12.3 per cent last year while rental rates surged 19 per cent. Colliers director of research and consultancy Simon Lo Wing-fai said rents in East Kowloon would stay under pressure while Central would show double-digit growth this year. DTZ also forecast that monthly rents for offices in Central would climb another 15 per cent in the first half from an average HK$110 per square foot at the end of last year. Analysts expect the residential sector to continue to benefit from executive and monetary policies. 'Anticipation of another rate cut of 75 to 100 basis points this year, the negative real interest rate and expansion of the Mortgage Insurance Programme are positive to the market,' said Ricky Poon Wai-kei, a director for residential sales. Particularly upbeat on the luxury residential segment given the tight supply, Mr Poon predicted a 25 per cent climb in sale prices and a 15 per cent rise in rental rates. DTZ expected supply on Hong Kong Island would decline from 903 units this year to 375 next year and 461 in 2010. Mr Lo said he expected the retail property market to outperform this year with rental rates of street-level shops in core districts rising 28 per cent and sales prices surging 30 per cent on a buoyant economy. Mr Lo is also bullish about the industrial sector as infrastructure projects such as the Western Corridor started operating last year and Route 8 connecting Sha Tin and Kwai Chung opens this year. The traditional industrial districts of Sha Tin, Tsuen Wan and Kwai Chung would be the key beneficiaries, with rental rates gaining 2 per cent and sale prices climbing 14 per cent on average, Mr Lo said.