Jones Lang LaSalle, a local real estate specialist, said in this year's annual property review that the overall market is expected to rebound in the second half of 2010.

"As the global economic meltdown drags on to 2009, we expect the market to be volatile in short to medium run," Marcos Chan, head of Pearl River Delta research at Jones Lang LaSalle said.

"Since demand for property investments and tenant occupancy is expected to be thin, it is unavoidable that capital values and rents across all market segments will trend down between now and 2010," he added.

In the coming year, Jones Lang LaSalle expects on average a 15-30 percent decline in both rental and capital values of properties across different market segments amid an economic slowdown.

The rental up-cycle of the office market ended in third quarter this year after growing for 20 consecutive quarters since the same period in 2003. This year's first three quarters of rental went up by 20.7 percent, followed by a 7.5 percent drop starting in the fourth quarter. The 19 consecutive quarters' uptrend also ended for the capital value correction of Grade A office properties. The overall capital values dropped 14 percent in the first 11 months of 2008.

"In 2009, we'll see more companies downsizing for cost reduction. And the abundant new supply and high vacancy level in Kowloon East will likely trigger price competition across most sub-markets leading to further rental drop by around 25-30 percent," Gavin Morgan, head of markets at Jones Lang LaSalle, said.

For retail property market, Jeannette Chan, regional director of Sandalwood, expects rental for high street shops and prime shopping centers to fall by 20-25 percent and 15-20 percent, respectively due to weakening consumer sentiment and shrink in demand.

On the residential side, overall sales and purchases from January to November shrank to 91,000, down 17 percent from last year due to softened demand stemming mainly from job uncertainties and tightening lending policies from banks.

"We expect value and rental of luxury properties to both have a 15-20 percent correction. Mass residential value will fall by 20-25 percent with further dampening investment and end-user demand," Joseph Tsang, head of residential said.

Weaker consumption also lowers demand for warehousing facilities across the world. The relaxation of macroeconomic control measures by the central government, however, is likely to alleviate drastic drop in domestic consumption on the mainland, said Chan.

Warehouse properties' rental overall grew mildly by 5.9 percent for whole year of 2008 due to low vacancy level of high quality warehouses properties in Hong Kong. Their capital values, however, dropped by 3 percent.

(HK Edition 12/12/2008 page2)