Gavin Morgan, international director and head of Hong Kong markets at Jones Lang LaSalle, said that businesses were concentrating on saving costs and were keen to move into lower-cost office buildings.

Leasing transactions had been mainly driven by cost-conscious organisations relocating their offices to other buildings in the same district or even moving to properties in other locations, he said.

Central and Kowloon East were the two busiest districts for leasing activity. The high cost of offices in Central means that tenants are trying to move to much cheaper buildings to minimise operational costs.

Companies can find high-quality buildings at relatively competitive rents in Kowloon East, where there is a large supply of newly completed offices.

'We see landlords in general offering more competitive lease terms,' Mr Morgan said. 'In Kowloon East, for example, some landlords have offered aggressive and creative packages to keep existing tenants and attract new ones - from providing rent-free periods and incentives to encouraging companies to move into their buildings.'

Simon Lo Wing-fai, director of research and advisory at Colliers International, said tenants were eager to reduce their total rental outgoings to cope with the prospective business contraction this year.

Popular real estate options elected by tenants in the first quarter of this year included negotiating for lower rents, office decentralisation, consolidation of floor area requirements and downgrading to second-tier developments.

As of last month average office rents were about HK$77 per sqft a month in Central, HK$40 in Wan Chai and Causeway Bay, HK$30 in North Point and Quarry Bay, and HK$17.50 in Kowloon East, according to Colliers. Vacancy rates rose to 5.1 per cent in Central, 3.2 per cent in Wan Chai and Causeway Bay,3 per cent in North Point and Quarry Bay, and 29.3 per cent in Kowloon East.

Mr Lo forecast that grade A office rental would see a further decline of30 per cent in the next 12 months.

Central, despite a lack of new supply, would see a steeper rental fall as the financial sector consolidated and companies surrendered space back to the market, he said.

He said that leasing demand was expected to contract due to the economic slowdown. Tenants in Central would look to downgrade to cheaper property alternatives to save rental costs.

'Competition for tenants among landlords in Kowloon East will remain keen with slower-than-expected absorption and the accumulated vacant stock in the sub-market. Tenants will be lured to relocate due to the steep rental difference between the Central business district on Hong Kong Island and Kowloon East,' Mr Lo said.

Mr Morgan estimated that grade A office rent had dropped 14 per cent in the first two months of this year and he expected the decline to continue.

He forecast that average rents would fall by a total of 35 per cent this year, followed by a further decrease of 5 to 10 per cent in 2010. But he said the rental correction would be a positive development for the market and it would make Hong Kong a more affordable location for overseas companies to expand their operations.

According to Xavier Wong Kit-hung, a director and head of research at Knight Frank, grade A office rents have decreased by about 31 per cent since the market's peak in July last year.

Prime buildings in Central saw rents slide by36.2 per cent on average.

Ms Wong said financial institutions were hit hard by the global economic turmoil while many companies were undergoing a process of downsizing and some might surrender their office space to landlords or move to non-core areas to save costs.

Rents in core areas would inevitably continue to trend down due to shrinking demand from the finance industry, and vacancy rates could rise further, she said.

With a large amount of office supply in Kowloon East, the district would continue to be a low-cost haven to companies in the coming years

American International Assurance committed to six floors in Manhattan Place in Kowloon Bay last month and another international insurance giant was reportedly negotiating to take more than 100,000 sqft of office space in the same district.

Ms Wong said tenants now had strong bargaining power and landlords in core areas had cut rents aggressively over the past few months to retain cost-sensitive tenants.

She said that grade A office rents could decline by 50 per cent from the peak levels in 2008 before touching the bottom. That meant rents could fall another 20 to 30 per cent before stabilising.

She expected the office leasing market to hit a trough in the second half of next year.