by Brianna Crandall — January 2, 2017 — Hong Kong and London retained their spots atop the world’s priciest premium office markets while New York replaced Beijing in the third spot, according to global professional services and investment management firm JLL’s latest Premium Office Rent Tracker.
The report, which compares like-for-like occupation costs across 35 markets in 31 cities worldwide, shows a tightening among the world’s premier markets over the past year as well as a significant uptick in rents in the priciest cities.
Supply crunch boosts Hong Kong rents
Hong Kong’s Central submarket occupancy cost for premium office space reached new heights at U.S.$302 per square foot per year, which includes extras such as service charges and property tax. That figure is up from $262 a year ago. Prices were again pushed up by strong demand and an extreme supply shortage, resulting in a miniscule vacancy rate of just 1.5 percent in Hong Kong, second only to the 1.4 percent vacancy in Beijing’s Finance Street submarket.
While Hong Kong Central’s top spot in the ranking is not new, its sizeable lead over the rest of the field is. Occupancy costs for premium space in Hong Kong Central are now in excess of 50 percent greater than either London or New York as companies from mainland China look to Hong Kong for top office space. But that robust rent growth could plateau with surrounding submarkets offering more than 50 percent discounts to prime.
U.S. markets rise while London moderates
Midtown New York overtook Beijing as the world’s third most expensive premium office market, with total occupancy costs edging up to $194, compared to $171 last year. New York saw more than 10 percent rent growth, outperforming China’s alpha cities Beijing and Shanghai.
“We continue to see upward rent pressure on the most coveted office space as vacancies shrink and the nation’s gateway cities wrestle with how to best strike a balance between prestige and affordability,” pointed out JLL International Director Christopher Roeder. “Moderating rent growth in San Francisco is an example of the challenges these cities face.”
San Francisco (#2 in U.S. cities) fell by one position to eighth as rent growth there showed signs of softening. Boston (#3 in USA) moved up the ranking four spots and cracked the top 12 for the first time, with recently completed 888 Boylston Street setting a new rental benchmark. Washington, DC, remained stable in 13th place overall.
Premium rents in London’s West End saw a reduction of 15 to 20 percent from a year ago as hedge funds and private equity firms adopted a wait-and-see approach following the Brexit vote.
JLL’s 2016 Premium Office Rent Tracker is available for free download from the JLL Web site with brief registration.
