Property group Hongkong Land Holdings posted a 13 per cent rise in annual underlying earnings yesterday thanks to a rebound in the Hong Kong property market that analysts believe will gather pace this year.

A major landlord in Hong Kong's main business area, the firm made an underlying net profit of US$197 million in 2004, when property values in the city climbed on average one third and rents on top grade offices jumped around 35 per cent.

Analysts, whose forecasts were in a US$191 million-US$204 million range, expect this year to be even better for the company as it renegotiates leases made in a property market slump around the time of an outbreak of the SARS respiratory disease in 2003.

Hongkong Land, listed in Singapore and London, made a net profit of US$174 million in 2003. The company said assets per share rose by 43 per cent to US$2.34 as property values recovered, and added it was investing in its core commercial holdings as the Hong Kong office and retail property markets improve.

Company Chief Executive Nicholas Sallnow-Smith said underlying profit was boosted last year by a jump in profit from residential projects to around US$35 million from around US$3 million the previous year.

This year, renegotiation of three-year leases would spur office rental income.

One square foot of prime office space was typically rented for just over HK$30 in 2002 and about HK$20 in mid-2003, suggesting 2006 should be a banner year for Hongkong Land if the property market continues to strengthen.

"If we did a deal today, rental from all our buildings would be in the 40s," Sallnow-Smith told reporters, referring to rent in Hong Kong dollars per square foot.

Because many companies upgraded their premises to take advantage of low rents during the SARS outbreak, analysts say Hong Kong now faces a supply crunch for prime office space.

Vacancy rates in the gleaming business district of Central, have fallen to just under 7 per cent from nearly 9 per cent in mid-2004, according to property consultants Jones Lang LaSalle.

Only 6 per cent of Hong Kong Land's offices were empty, said Sallnow-Smith, adding the firm was looking to buy new buildings.

"We would focus on Central. If a landlord were willing to sell, we would be quite interested," he said.

(HK Edition 03/01/2005 page3)