In Hong Kong, the vacancy rate in Central rose to 11.2%, while that in Wanchai/Causeway Bay, Hong Kong East and Tsimshatsui was 7.9%, 7.8% and 9.2% respectively. The average net effective rent fell 12.3% in Central, 7.8% in Wanchai/Causeway Bay, 8.9% in Hong Kong East and 4.1% in Tsimshatsui with more attractive incentives, according to the report.

The good news was that a number of leasing negotiations that began in the previous year were concluded in the first quarter of 2003, particularly at superior-quality buildings that offer cost-effective space, and that there is an increasing incidence of long-term leases. "Tenants are increasingly opting for lease restructuring to secure longer-term business accommodation, capitalizing on the current attractive rentals and packages," according to the report. "This should help lead to a less volatile office market."

The office market in Guangzhou, meanwhile, benefited from the strong growth of 13.2% of the city in 2002. "Provincial joint ventures, particularly those engaging in the manufacturing sector, drove the demand as they set up sourcing and overseas marketing operations in the city," according to the report. "Upgrading activities to buildings of higher quality were common among smaller domestic companies. The office market was broadly stable, registering a 0.5 percentage-point drop in the vacancy rate while the rental levels remained unchanged."