Shanghai's depressed office leasing market may drag down Hang Lung Properties' rental income - its major earnings driver for this year and next - given an abundance of new supply and a deteriorating economic outlook, analysts said. Its office rental income on the mainland, all of it in Shanghai, accounted for about 16.5 per cent of its HK$2.04 billion revenue for the six months to December. It was mainly derived from the Plaza 66 office-retail complex. Mainland office rental income contributed 40 per cent of the HK$829 million rental income from its mainland investment portfolio. 'We may have to adjust our office rents when leases become due for renewal this year,' said executive director Terry Ng Sze-yuen. He declined to estimate the extent of rental reductions but said the group's overall rental income would still achieve single-digit growth next year even in the worst-case scenario. For the six months to December, Hang Lung's mainland rental income rose 23 per cent to HK$829 million, while Hong Kong income increased 9 per cent to HK$1.21 billion. Of the total, Plaza 66 office rents edged up 22 per cent to contribute HK$337 million, achieving a record average rent of HK$33 per square foot per month. The remaining HK$492 million was generated from its retail portfolio - partly from Plaza 66 and another Shanghai shopping centre, Grand Gateway. Jim Yip Kin-shing, the head of investment for North China at DTZ, said average grade A office rents had dropped about 15 per cent to about 10 yuan (HK$11.34) per square metre per day in Puxi district in Shanghai. 'Shanghai's office rents fell for the first time in eight years.' He said office rents would likely drop a further 20 per cent to eight yuan per square metre per day since the city would see up to 2.28 million sqmetres of new supply this year. 'Most multinational corporations have been hard hit by the global financial downturn,' he said. 'Everyone is talking about lay-offs and cost-cutting.' Although the office leasing market is softening, Mr Ng said the impact on the group's grade A office space would be limited because the majority of new office supply would be in Pudong. Over the next three years, he said, the firm's office leases in Shanghai due for renewal would be evenly distributed with about one-third coming up every year. In Shenyang, 15 to 20 per cent of the total space of its HK$8 billion shopping centre - due to open in 2010 - was under advanced talks, Mr Ng said. In Hong Kong, he said retail rents would still fetch positive rental reversion, given that the leases were signed several years ago. On residential development, he said the firm would maintain its strategy of only selling flats in a market boom. It holds 2,000 completed units, including 763 at the HarbourSide at Kowloon station. Meanwhile, sources said 10 units at the Cullinan, worth a combined HK$300 million, had been reserved by potential buyers by last night at between HK$17,000 and HK$18,000 per square foot.