Swire Pacific's earnings for last year will fall sharply, analysts said, as growth in rental income fails to offset steep losses at 40 per cent-owned Cathay Pacific Airways. The blue-chip conglomerate, with operations ranging from property to aviation to beverages, is expected to report core earnings for last year of HK$3.72 billion to HK$4.2 billion. When Swire reports earnings on Thursday, Credit Suisse property analyst Cusson Leung expects to see a decline of 58 per cent year on year to HK$4.2 billion. That is largely due to an expected loss of HK$7 billion at Cathay Pacific, the Hong Kong airline. 'Apart from the drag from Cathay, we believe the company's beverage and hotel operations will suffer from the economic slowdown starting from the second half of 2008,' wrote Mr Leung in his report. Rental income is expected to increase 19 per cent from a year earlier to HK$4.88 billion, but this will be a slowdown from the 23 per cent year on year growth in the first half of last year to 16 per cent in the second half. 'This decent growth was partly attributed to the contribution from One Island East,' Mr Leung wrote. Credit Suisse expects the positive rental reversion to be over next year, and it forecasts a 35 per cent fall in the office rents for one of its office projects, Pacific Place, in Admiralty and 25 per cent drop for its office portfolio in Quarry Bay, Island East. Swire has 14.67 million square feet of office space, shopping centres, hotels and serviced flats in Hong Kong and 1 million square feet of retail space and hotels in Beijing. It is developing 6.85 million sq ft of commercial properties in Shanghai and Guangzhou. Danie Schutte, regional conglomerate analyst at CLSA, expects Swire will report core earnings of HK$3.72 billion, including a HK$3.5 billion loss from its aviation business. 'Property operations will become its major earnings driver this year,' he said, adding that property would account for 84 per cent of Swire net asset value, with 10 per cent from aviation. Average office rents at Pacific Place were HK$70 per square foot with some units achieving as high as HK$120 per square foot. Tenants at its new grade-A office project, One Island East, were charged HK$30 per square foot to HK$35 per square foot. With the sharp worsening of the economy and the financial industry in particular, most brokerage houses have further lowered their office rental estimates for this year and next. Mr Schutte said Swire's rental income would be affected as office rents would plunge 20 per cent this year and a further 10 per cent next year. Paul Louie, the regional head of property research at Nomura, said a drop of 1 percentage point in gross domestic product would represent a 4 per cent decline in overall office rents but a 9 per cent plunge in Central, a favourite address among multinational companies. Last month, the government estimated the economy would shrink by 2 per cent to 3 per cent this year, down from a growth of 2.5 per cent last year. In January, Swire Properties said the correction in office rentals would be compensated for by a solid performance in the retail sector. Jolyon Culbertson, a general manager at Swire Properties, earlier had said there would be reduced expansion in the office market and demand for new space would be less than last year. 'It will reduce rental income,' Mr Culbertson said, adding that the impact on rental income would not be apparent immediately. 'We actually still have positive reversions from renewing tenancy agreements which were signed two or three years ago.' Positive rental reversions refer to leases renewed at a higher rate and reflect current market conditions. Swire's office portfolio is almost fully let, with only three floors at One Island East in Quarry Bay yet to lease. The occupancy rate for One Island East is 95 per cent.