Is the two-year bull run in Hong Kong and regional office rental prices, which dates back to the third quarter of 2009, finally running out of steam? With the regional stock markets being battered by repeated external shocks - from the debt crisis in Greece and Italy - it's hard to avoid the spreading sense of gloom. The office leasing market in Singapore, Indonesia, Malaysia and Thailand is feeling the pinch of the European crisis as companies hold back on expanding and opt for a wait-and-watch attitude. Hong Kong's office leasing market is no exception and agents expect the commercial sector to slow down. 'If you talk to landlords and agencies as a whole, I think you will find that demand for leasing has slowed down a bit already and looking to [the fourth quarter] and early next year, demand will certainly slow down,' Rhodri James, executive director of office services at CB Richard Ellis, says. Central, Hong Kong's prime financial district, is potentially in the eye of the storm with asking prices for monthly rental of some premium office space recently reaching as high as HK$180 per square foot. The same can be said of Orchard Road, the prime business district in Singapore, where office leasing is already slowing, according to property agents. Even before the latest round of financial market jitters threatened to completely derail diminishing investor confidence in global growth prospects, some major tenants were heading for the doors. Credit Suisse has just completed its move across the harbour from Exchange Square to the International Commerce Centre in West Kowloon while Ernst & Young will shift from IFC2 to Citic Tower in Admiralty by the end of the year. Aon Corporation recently pre-committed to leasing 50,000 sqft of office space in Times Square in Causeway Bay as it prepares to move out of Aon China Building in Central. With three smaller buildings also due to open in Central, James estimates that about a million sqft of potential vacancy exposure will be added in the district in the next six to nine months. But he says while rents are already starting to come under pressure in core Central, they are continuing to rise elsewhere. 'Net rental growth is fairly stable across non-traditional districts, in places like Causeway Bay and Island East, for example, there is not a huge amount of outstanding stock,' James says. Data from Colliers International puts the latest average monthly office leasing price in Central at HK$118.70 per sqft, double the going rate of HK$59.30 for Wan Chai and Causeway Bay, and almost three times the HK$40.60 being charged in Island East. In view of that, Colliers' assistant manager of research and advisory, Joanne Lee, sees chances of more companies moving out of Central for cheaper options. 'Several multinational corporations have already put their expansion plans on hold, while a number of landlords have become less firm in rental negotiations,' she says. 'Looking ahead, the average grade-A office rent in Hong Kong is expected to drop by 8 per cent over the next 12 months.' However, that is not the view of Gavin Morgan, deputy managing director and head of leasing at Jones Lang LaSalle. He expects rental prices to drop off over the next few months, but says for this year as a whole, there will still be healthy year-on-year growth in Central and all the other districts. 'The intention of the business community is expansion not contraction. Obviously we'll need to keep a close eye on global economic developments, but the feedback we are getting is that corporates are finding it challenging to expand in their home markets and are still looking to Hong Kong and Asia for some growth,' he says. For next year, he believes the net expansion of office requirements will be small overall with a strong focus on non-core areas, but there should be enough growth to push rents gently higher. 'Vacancies are low, below 4.5 per cent across all markets, and future supply is effectively at an all-time low, so it's not going to take a lot of extra demand to push prices up,' Morgan adds. Industry experts agree that decisions by financial services companies, especially banks, will be crucial in determining which way the Central office leasing market heads. 'Banks can't get rid of office space as quickly as they might be able to get rid of headcount. Given the nature of local leases, there is a long lead time,' James says. 'Will banks give up space in Hong Kong? It's hard to say, because quite a few financial institutions are actually looking to Hong Kong and Asia to generate growth for their business.' He also foresees some additional demand coming from mainland companies and overseas firms setting up in Hong Kong, and says this would help soften any loss of demand from the traditional occupier base in the district.