OFFICE rentals will be driven higher by rising demand in the next 12 months, according to a property analyst. While rents had risen in the 12 months to June this year, demand remained stronger than supply, Alan Dalgleish, research manager at First Pacific Davies, said. This would keep rents moving upwards until 1996, he said. ''Into 1996, rents will consolidate overall because we will start to get new office supply in Central, Wan Chai, North Point and elsewhere,'' he said. The trend towards decentralisation would continue during the next 12 months, with areas such as Quarry Bay continuing to experience an influx of service companies moving into new office buildings, including Dorset House which was expected to be completed by December this year. ''In particular the I/O (industrial/office) buildings market should be watched over the next 12 months,'' he said. Many manufacturers in Tsim Sha Tsui would move to I/O buildings in Kwun Tong, he said. Offices vacated by these companies would then be taken up by service companies moving from Hong Kong island. Office sales prices would rise 15 to 20 per cent in the next 12 months with most of the increase taking place from the autumn onwards. The sales market would be relatively quiet, Mr Dalgleish said. ''The banks are reining in their loans and no one is in a rush to sell, because the rental market is going up and there is limited supply,'' he said. Government threats to intervene in the office market to cool prices would also dampen activity. Retail rents may decrease during the next 12 months. High property prices were affecting consumer spending which, in turn, was dampening retail sales and, consequently, profit margins. The knock-on affect may affect the level of rents retailers were prepared to pay, resulting in cheaper leases. ''The take-up of retail space in 1994 cannot get much lower than last year,'' he said, when only 764,200 square feet was leased in 1993, the lowest level since 1972. ''There was a general shift towards shopping centres, because Hong Kong is getting more sophisticated, but developers are finding it hard to get tenants into centres, because it can be hard to pull in consumers,'' he said. Developers would increasingly have to think about the design and marketing strategies, he said. In the luxury residential sector, Mr Dalgleish said rental growth would be slower as a result of tenant resistance. Rents were forecast to slow to 15-20 per cent for the next 12 months. Despite a preference among luxury tenants on Hong Kong island to remain there, 75 per cent of new accommodation coming on to the market in 1995 would be in the New Territories, he said. However, because many of these tenants may not be prepared to move there, Mr Dalgleish said the firms which paid the rent for most leased luxury properties may look for staff in the future who would be prepared to live in cheaper accommodation in more remote locations. However, the demand for rented properties on Hong Kong island may be partly offset by the release of flats on to the market which were previously up for sale, he said. The sales market for luxury properties would continue to be slow, he said, because ''confidence is fairly weak''.
