EVER-INCREASING demands for commercial property in Hong Kong will make Western district the next area to redevelop into a prime office area, according to Beatrice Lai, L & D's commercial property director. Ms Lai said the planned third cross-harbour tunnel and its possible link with the Mass Transit Railway would make Western an attractive office location for companies unable to afford rents in Central. She said Admiralty was currently the most popular area for firms to move to, because of its convenient location, sea view and good quality buildings. It took landlords a month to fill empty office space in Admiralty. This has resulted in rising rent in the area, which is expected to jump by between 20 and 25 per cent this year. Offices which are 1,500 to 3,000 square foot are the most popular in Admiralty. Ms Lai said rents would continue to rise in Hong Kong this year because the vacancy rate for prime commercial space in the territory would fall below five per cent. Capital values would also continue to increase because of the lack of office supply. Rental yields were running at three to four per cent a year and sale prices for prime office properties were $15,000 to 20,000 per square foot. Although investors were proving to be more cautious because of the high capital values, there was no reason for there to be a big drop in sale prices, she said. The only alternative to paying high rents or buying premises was for companies to move to decentralised locations, she said. As well as the development potential in Western, other decentralised locations which could see more firms relocating were Tsuen Wan, Kwun Tong, Kowloon Bay and Quarry Bay. She said a number of firms would also move their support departments to multiple-use industrial-office (I/0) buildings, which had high quality fittings. The demand for office space was being pushed up by overseas companies which were moving into Hong Kong to do business in China. She said half of the commercial buy and sell transactions handled by L & D were for mainland companies and the remainder were locally listed firms. Overseas companies seldom bought property, preferring to lease, she said. There was good investment potential for companies looking to buy office space in China, where an annual interest rate of between 12 and 25 per cent could be earned on office property in Beijing and Shanghai.