ENG-2001 — Page 103

THE ECONOMY

On commercial property, the rental market for office space slackened visibly in 2001, amidst more extensive corporate downsizing and restructuring upon the impact. of the economic downturn. Further dampening demand was continued consolidation of the information technology sector. Trading activity quietened particularly after the September 11 incidents. This had prompted many landlords to lower rent and extend the rent-free period in a move to improve occupancy. On a quarter-to-quarter comparison, office rentals moved lower in the second to the fourth quarters of 2001, on average by 1 per cent, 2 per cent and 4 per cent respectively, more than offsetting the 3 per cent rise in the first quarter. For 2001 as a whole, office rentals on average went down by 5 per cent. The sales market for office space was weak for most of the year, as acquisition interest waned amidst the subdued economic conditions and an uncertain business outlook. On a quarter-to-quarter comparison, prices of office space on average fell by 1 per cent in the first quarter of 2001, and then more appreciably by 4 per cent in the second quarter, and further by 8 per cent and 7 per cent respectively in the third and fourth quarters. For 2001 as a whole, there was a cumulative decrease of 18 per cent. Against their respective peak levels in 1997, prices and rentals of office space in the fourth quarter of 2001 dipped by an average of 69 per cent and 39 per cent.

The rental market for shopping space was sluggish throughout 2001, amidst the moderation in retail business especially in the wake of the September 11 incidents. In a move to boost occupancy, landlords were generally inclined to grant greater rental concessions and more flexible lease terms. On a quarter-to-quarter comparison, shop rentals on average drifted lower by 1 per cent each in all the four quarters of 2001. For 2001 as a whole, there was thus a cumulative fall of 4 per cent. As to the sales market for shopping space, activity remained rather limited throughout the year, with acquisition interest concentrated in well-managed shopping arcades in more popular locations. On a quarter-to-quarter comparison, prices of shopping space were down in all the four quarters of 2001, on average by 3 per cent, 2 per cent, I per cent and 6 per cent respectively, giving a 12 per cent decrease for the whole year. Against their respective peak levels in the third quarter of 1997, prices and rentals of shopping space in the fourth quarter of 2001 plunged by an average of 58 per cent and 21 per

cent.

On industrial property, the rental market stayed in the doldrums for most of 2001, amidst the weak performance of external trade and continued relocation of manufacturing processes outside Hong Kong. Also relevant was the dissipated demand for modern industrial premises to be used as data centres and back-up service centres, upon further consolidation of the information technology sector. On a quarter-to-quarter comparison, rentals of industrial space on average decreased by 2 per cent in both the first and second quarters of 2001, and by 3 per cent and 2 per cent respectively in the third and fourth quarters. For 2001 as a whole, there was on average a 9 per cent decline. The sales market for industrial property was likewise quiet. On a quarter-to-quarter comparison, prices of industrial space on average were lower by 4 per cent, 1 per cent, 1 per cent and 7 per cent respectively in the four quarters of 2001, giving a 13 per cent fall for the year as a whole. Against their respective peak levels in 1994, prices and rentals of industrial space in the fourth quarter of 2001 slid by an average of 66 per cent and 42 per cent.

Planned developments of all types of property in the private sector, as indicated by the total usable floor area on building plans with consent to commence work, were

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