Hong Kong-Central remains world's most expensive office market

​New York City,June 25, 2013-Asia dominates the Top 10 list of the world’s most expensive office locations, with Hong Kong-Central remaining the highest priced market, according to CBRE Global Research and Consulting’s semi-annual Prime Office Occupancy Costs survey.

 

Hong Kong–Central’s overall occupancy costs of US$235.23 per sq. ft. per year topped the “most expensive” list for the third consecutive time. London’s West End followed with total occupancy costs of US$222.58. Beijing’s Finance Street, Beijing’s Jianguomen CBD and New Delhi’s Connaught Place CBD rounded out the top five.

 

Other Asia-Pacific markets in the top ten include Hong Kong-West Kowloon (6th) and Tokyo (Marunouchi/Otemachi) (8th). New York’s Midtown Manhattan (10th) returned to the top ten markets for the first time since early 2012, joined by Moscow (7th) and London’s City (9th).

 

Sydney was the highest priced Australian market in 13th position, followed by Perth (21st), Brisbane (29th), Melbourne (49th), Adelaide (71st) and Canberra (93rd). Perth also made it into the Top 20 list of cities with the biggest increase in occupancy costs, ranking in 16th place.

 

Globally, occupancy costs rose by a scant 1.4% on a year-over-year basis as modest growth in the Americas and Asia Pacific was partly offset by a slight decrease in recessionary Europe. However, the modest global average uptick masked significant increases in markets like Jakarta, Indonesia and suburban Houston, Texas, which posted increases of 38.9% and 21.2%, respectively.

 

“While the pace of occupancy cost growth globally has slowed, limited supply of prime space in key core business centers has fueled continuous upward movement of occupancy costs,” said Dr. Raymond Torto, CBRE’s Global Chief Economist. “The most expensive office markets often attract the regional headquarters of large multinational firms that require a prime location in a prestigious building with access to major global and regional transit routes.”

 

CBRE tracks occupancy costs for prime office space in 127 markets around the globe. Of the top 50 “most expensive” markets, 21 are in Asia-Pacific, 18 are in EMEA and 11 in the Americas.  

 

While comparisons in dollars are affected by currency exchange rates, annual percent change calculations are based upon occupancy costs in local currency and are not influenced by currency changes.

 

Asia-Pacific had 21 markets ranked in the top 50 most expensive, including six of the top ten— Hong Kong Central, Beijing’s Finance Street, Beijing’s Jianguomen CBD, New Delhi’s Connaught Place CBD, Hong Kong-West Kowloon and Tokyo (Marunouchi/Otemachi).

Hong Kong Central’s position as the most expensive office market continues to be bolstered by its status as a leading global financial center. Although financial institutions have become more cost sensitive, with some considering relocating to less expensive space outside the CBD, high-quality and premium space is still sought after, especially by mainland Chinese firms which are increasingly setting up their offices in Hong Kong (Central) in prestigious buildings.

 

Asia also had the markets with both the sharpest annual increase and decrease among the markets tracked. Jakarta’s 38.9% increase was driven by a substantial recovery in domestic demand in the wake of Indonesian sovereign debt’s return to investment-grade status, which energized leveraged investment initiatives and drove up demand for prime office space across the capital. Singapore experienced the largest annual decrease worldwide (-16.3%) due, in part, to increases in both new supply and the availability of lower-priced secondary space. The bulk of the rental decline occurred in early 2012, with only minimal rental corrections in the second half of 2012 and in Q1 2013.

 

The most expensive market in the global ranking from the Pacific Region was Sydney (US$119.23 per sq. ft.), which came in at 13th.

 

CBRE’s Head of Research for Australia, Stephen McNabb, said Sydney’s top ranking in the Australian region was consistent with the report’s overall findings that the most expensive office markets are the ones that attract the regional headquarters of large multinational firms, particularly those in the financial services industry, with Sydney having the highest exposure to this market sector.

 

However, Mr McNabb said there had been a “value shift” to Perth, as shown by the city’s high ranking on the list of cities with the highest growth in occupancy costs.

 

“The increase in the terms of trade driven by high commodity prices has boosted income in the WA market relative to other Australian states,” Mr McNabb said.

 

“This has supported capacity to pay higher rents in Perth.”

 

Energy markets, such as Denver, Calgary and Houston, reported the strongest annual prime office occupancy gains, with Houston’s Suburban and Downtown office markets witnessing significant increases in year-over-year occupancy costs, of 21.2% and 14.9% respectively. High-tech markets also saw rising costs, including San Francisco (Downtown), Boston (Downtown and Suburban), and Seattle (Downtown and Bellevue CBD). Prime costs in Boston’s Downtown surged, rising 15.4%.

 

Across most of the fast-growing energy and high-tech markets, new supply is limited given the requirement of a high level of pre-leasing before any new construction can be financed.

 

In Latin America, São Paulo remains the most expensive market, posting an office occupancy cost of US$118.86 per sq. ft., and ranks as the 14th most expensive market globally.

 

In addition to London’s West End ranking as the world’s second-most expensive market, other markets from the region in the list’s top ten are Moscow (occupancy cost of US$165.05 per sq. ft.) and London’s City (US$132.94 per sq. ft.).

Struggling economic conditions and cost-containment initiatives led to lower demand for office space and restrained pricing across many Southern European markets including Madrid, Milan, Rome, Athens and a number of smaller markets such as Valencia and Oporto.

 

 

Note: The full Top 50 Most Expensive Markets chart is located at the end of this press release.