CBRE: Hong Kong overtakes London as world’s most expensive office market

by Brianna Crandall — July 4, 2016 — Hong Kong has become the world’s highest-priced office market, and Asia continues to top the list of the world’s most expensive office locations, with Hong Kong and Beijing accounting for four of the top five markets, according to CBRE Research’s latest semi-annual Global Prime Office Occupancy Costs survey.

The global real estate advisor’s study found that, in U.S. dollars, Hong Kong’s (Central) overall prime occupancy costs of $290 per square foot per year topped the “most expensive” list, displacing London’s West End ($262 per sq. ft.). Beijing (Finance Street) ($188), Beijing (Central Business District [CBD]) ($182) and Hong Kong (West Kowloon) ($179) rounded out the top five.

The study also found that the real estate recovery in Ireland continued to gain momentum, with Dublin, which experienced a 50% drop in rents during the downturn, showing the second-largest year-over-year prime occupancy cost increase among the 126 cities surveyed (up 16.6% year-over-year) — second only to Hong Kong (West Kowloon) (up 19.5% year-over-year). In North America, real estate fundamentals saw steady improvement with both Atlanta (Downtown) and Seattle (Downtown) among the 10 markets with the fastest growing prime occupancy costs.

Global prime office occupancy costs — which reflect rent, plus local taxes and service charges for the highest-quality, “prime” office properties — rose 2.4% year-over-year, with the Americas up 2.3%; Europe, the Middle East and Africa (EMEA) up 2.1%; and Asia Pacific up 2.7%.

Richard Barkham, global chief economist, CBRE, commented:

We expect the global economy to keep growing, and the global service sector, the primary occupier of prime office properties, will continue to expand through periods of volatility. Since inflation is low, the growth in prime office occupancy costs is significant for both users and investors.

CBRE tracks occupancy costs for prime office space in 126 markets around the globe. Of the top 50 “most expensive” markets, 20 were in Asia Pacific, 20 were in EMEA and 10 were in the Americas. Highlights of the report appear below.

Europe, Middle East and Africa (EMEA)

Europe is benefitting from a cyclical pick-up in consumer spending and business investment, as well as a very competitive currency and intense monetary stimulus, which helped to make Dublin, Stockholm and Barcelona the fastest-growing markets in the region.

Most Central and Eastern European markets were down year-over-year, including Moscow, which is still in the midst of a recession.

Costs accelerated quickly in South Africa, with Johannesburg, Cape Town and Durban all seeing increases of at least 6.9% from year-ago levels.

Only 11 out of 56 EMEA markets recorded a year-over-year decline in prime office occupancy costs.

In addition to London West End, the other market from the region in the global top 10 was London City ($145 per sq. ft.).

Asia Pacific

Asia Pacific was home to seven of the top 10 most expensive markets — Hong Kong (Central), Beijing (Finance Street), Beijing (CBD), Hong Kong (West Kowloon), Tokyo (Marunouchi/Otemachi), New Delhi (Connaught Place – CBD), and Shanghai (Pudong).

The service sector will show particularly strong growth in Asia as pensions and insurance products gain market share, according to the report. So occupancy cost growth is expected to continue to trend upwards at a moderate pace.

Hong Kong (Central) is the only market in the world — other than London’s West End — with a prime occupancy cost exceeding US$200 per sq. ft. Hong Kong Central’s double-digit growth in occupancy costs was fueled by two factors: an ultra-low vacancy rate due to lack of new development, and continued demand for high-quality space in prime locations by mainland Chinese companies.

The most expensive market in the global ranking from the Pacific Region was Sydney ($93 per sq. ft.), in 22nd place.

A few key Southeast Asian markets registered decreases, including Singapore and Jakarta.

Americas

In the Americas, four markets — Monterrey, Atlanta (Downtown), Seattle (Downtown) and Atlanta (Suburban) — recorded double-digit percentage gains year-over-year.

New York Midtown, number nine on the global list, remained the most expensive market in the Americas, with a prime office occupancy cost of $137 per sq. ft.

Several energy-centric markets experienced material drops in occupancy costs, including Calgary (Downtown and Suburban), Houston (Suburban) and Denver (Suburban).

In the United States, economic growth is expected to pick up in the next several quarters following a turbulent opening quarter. Overall, occupier activity sustained last year’s momentum, leading to an increase in occupancy costs in 17 out of 22 U.S. markets covered in this survey.

Mexico City remained the most expensive market in Latin America, posting an office occupancy cost of $65 per sq. ft. and ranking as the 39th most expensive market globally. Both Brazilian markets, Rio de Janeiro and São Paulo, saw declines.

(In US$ per sq. ft. per annum)

Largest Annual Changes Occupancy Costs

(In local currency and measure)

Top 5 Increases

Top 5 Decreases

The full Top 50 Most Expensive Office Markets chart is located at the end of CBRE’s research announcement.