ENG-2003 — Page 94

THE ECONOMY

per

quarter-to-quarter comparison, office rentals declined on average by 4 per cent, 6 cent and 3 per cent respectively in the first three quarters of 2003, but rose back by 2 per cent in the fourth quarter. For 2003 as a whole, the decrease on average was 12 per cent. As to the sales market, activity remained subdued in the first half of 2003. But investor interest was rekindled markedly in the second half of the year, stimulated in part by the signing of CEPA in June and perhaps more so by the better economic outlook. On a quarter-to-quarter comparison, prices for office space on average went down by 4 per cent and 5 per cent respectively in the first and second quarters of 2003, yet rebounded by 4 per cent in the third quarter and further by 7 per cent in the fourth quarter. For 2003 as a whole, there was on average a slight increase of 2 per cent. Against their respective peak levels in 1994, prices and rentals for office space in the fourth quarter of 2003 plunged by an average of 72 per cent and 62 per cent respectively (Chart 14).

Chart 14

Index

180

160

140

120

100

80

60

40

20

0

Prices and rentals of office space (1999=100)

Price index

Rental index

QI Q2 Q3 Q4 QI Q2 Q3 Q4 QI Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1998

2003

1999

2000

2001

2002

Rentals for office space continued to decline during most of 2003, yet rose again mildly in the fourth quarter. Prices showed a distinct upturn in the second half of the year, amidst a resurgence of buying interest.

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The rental market for shopping space, having remained bleak in the first quarter and then hard hit by the spread of SARS in the second quarter, revived in the remainder of the year. This was supported by the pick-up in local consumer demand, as well as in inbound tourism particularly following implementation of the Individual Visit Scheme in July. However, there was a mixed performance amongst different retail premises amidst the revival, depending on location and management quality. Retail