ENG-2005 — Page 91

Prices and rentals of office space

(1999=100)

Rental index

80

60

40

20

0

Price index

T

The Economy 61

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

2001

2002

2003

2004

2005

Office rentals soared in 2005 as leasing demand strengthened alongside an increase in business activities. Supported by higher rental yields, the pressure to moderate office prices near year-end was limited.

The sales market for retail space also cooled off in the latter part of 2005. On a quarter-to-quarter comparison, prices eased back by 3 per cent in the third quarter before reverted to a small 0.1 per cent increase in the fourth. However, premises in prime locations with secure long leases continued to attract considerable acquisition interest. Prices of retail space rose by 11 per cent in the fourth quarter of 2005 compared the previous year. The leasing market continued to fare well amid sustained growth in inbound tourism and local consumption. Renewed leases in some renovated shopping arcades, in particular, showed a marked increase.

Industrial property sales stayed buoyant with solid investment demand being supported by attractive rental yields and the desire to convert factory space for other commercial uses. Prices continued to rise over the course of the year, though the increase slowed near year-end. In the fourth quarter of 2005, prices of flatted factory space surged by 36 per cent over a year earlier. Leasing activities were relatively quiet, with rentals moving up at a modest pace. In the fourth quarter, rentals of flatted factory space were 6 per cent higher than a year earlier.

Only a moderate number of new properties were completed in 2005 reflecting the delayed impact of the slack building activity in earlier years. Completions of private residential property shrank by 33 per cent to 17 300 units during the year. However, after taking into account the unsold units of completed projects and units. under construction not yet sold or not yet offered for sale, the supply of new private residential flats was substantial at 55 000 units by the end of the year, 2.5 times the