Great Eagle warns of further rent falls

Office rentals in Central could fall 5 to 10 per cent this year because of abundant supply, according to Great Eagle Holdings deputy chairman and managing director Lo Ka-shui.

With Central office towers such as Chater House and Two International Finance Centre looking for tenants, Mr Lo said: 'Office rentals should be pressured a little bit in the short term.'

He said it was similar to the situation in 1992, when Great Eagle's Citibank Plaza came on stream. It took nine months to lease out the project, which provided more than 1.6 million square feet, and during the period rents had been under pressure.

After the company's annual general meeting yesterday, Mr Lo said office rentals could rebound after two years when new supply was taken up, adding that future supply in Central was limited.

He expected one-third of his group's office portfolio would be due to renew tenancy within this year. The total income generated from its office leasing could shrink more than 10 per cent in the coming year, since some existing tenants were paying higher than market rent.

The group's rental income last year was about HK$630 million while the market's effective office rents plunged 30 per cent.

Mr Lo hoped income from local hotel operations this year could be on par with last year as Hong Kong tourism had picked up significantly. However, overseas hotel income dropped more than 10 per cent year on year in the first quarter.

Assistant director Adrian Lee said the overall occupancy rate in the company's Hong Kong hotels was higher than 90 per cent and room rates had edged up 15 per cent year on year.

He said the group would mainly focus on its 1.76 million square foot office-hotel-retail development in Mongkok in the coming two years and would be more selective in other investments.

Mr Lo said the Mongkok project, to be finished by early 2004, would be reserved for long-term leasing. The group did not intend to issue bonds at the moment because banks were offering low interest rates.

The group had fixed the interest rate for half of its bank borrowings at 5 per cent for five years - including HK$2 billion for local business and HK$3 billion for overseas operations.