In another sign of a possible economic downturn, office rents in Hong Kong could fall by up to 40 per cent, said Andrew Lawrence, Hong Kong property analyst at Barclays Capital.

Limited supply will still continue to favor high office rental rates, Lawrence said, but he estimates that rents would fall 10 to 15 per cent if Hong Kong’s economy will fall a soft landing. However, if it gets worse, office rents could experience a steep fall from current market rates.

With only 3.7 per cent vacancy rate last year, according to real estate consultant Colliers International, it’s not surprising that office rents have soared by about one-third from the previous year. The property brokerage firm also said that Hong Kong office rents remain the most expensive in the world, with an average of HK$$213.70 (US$27.4) per square foot per year as of mid-year. The value represents an increase of 32.3 per cent over the previous 12 months.

As companies begins to feel the pinch of economic uncertainty surrounding the Euro debt crisis, weak production output and other reasons only economists can elaborate, they may reduce headcount, freeze hiring or even wind down operations. That might impact the law of supply and demand for office spaces. Several new office buildings may still be constructed when the gloomy prospects were released. The government, the city’s biggest employer, is set to consolidate many of its offices into Tamar site which could leave old venues open for commercial office use.

Colliers International expects that office rents in Central by 10 per cent in the next 12 months. According to Simon Lo, executive director of research and advisory, business performance of tenants in the first half of next year will be a crucial indicator of how much rental rates will fall.

Across the harbour, office lease rates in certain parts of Kowloon are expected to rise. In Kwun Tong, Kowloon Bay and Kai Tak development area, categorically named Kowloon East, and groomed to be a future business district, office rents will increase five to six per cent while those in Tsim Sha Tsui are forecast to rise by 3 per cent.

Colliers surveyed 100 office tenants and investors between October 19 and 25. More than half the tenants said they would consider relocating to Kowloon East when their current rental contracts expire. Fifty-six percent of investors said they would consider going into the area.

Offices in Central may offer convenience to transportation links but I observe many workers have to deal with crowded spaces for lunch, jostle for space at subway trains and expensive costs of living should they prefer to live close to work. As new areas are opening up, this gives businesses more alternatives, regardless of how the economy will play out.