Both rental and capital values will continue to grow across all real estate markets in Hong Kong , according to Colliers International. The retail sector will be particularly strong in 2007, and is predicted to experience 19 percent rental and 25 percent capital value Y-o-Y growth by May 2008.

This will be mainly due to heightened consumer confidence linked to the Beijing Olympics games in 2008 with many operators looking to increase their market presence.

The grade A office market will also see sustained growth, although some pressure will ease with the additional space coming online in fringe areas, said Piers Brunner, Managing Director and Head of Commercial, Colliers. While prices will remain high in core central areas, the new supply will have an effect on how tenants manage their portfolios.

“Companies, especially financial companies, are simply unable to find the space the need for expansion above or below their current space,” Brunner says. This gives many organisations no option but to de-centralise operations, with new space in non-central locations being an attractive option.

Brunner cites a recent survey by Colliers, showing that the financial burden of high rents are becoming an increasingly important factor for tenants in Hong Kong, with 30 percent of respondents agreeing that high rents impact upon their business, up from just 17 percent last year.

This reflects the current market environment, says Brunner, where tenants have “no basis for negotiation with landlords, on any points.” However, this is set to change with new developments becoming available for occupation next year, “At the moment landlords are holding firm, but with 5 mil sqf coming online it's got to be a concern for them." RFP