Hong Kong has become the world’s highest-priced office market and Asia continued to top the list of the world’s most expensive office locations, accounting for four of the top five markets, according to CBRE Research’s latest semi-annual Global Prime Office Occupancy Costs survey.
Hong Kong’s (Central) overall prime occupancy costs of $290/ft²/year (€2,751.85/m²/year) topped the “most expensive” list, displacing London’s West End ($262/ft² or €2,479.03/m²). Beijing (Finance Street) ($188/ft² or €1,783.96/m²), Beijing (Central Business District (CBD)) ($182/ft² or €1,722.07/m²) and Hong Kong (West Kowloon) ($179/ft² €1,698.56/m²) 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 y-o-y prime occupancy cost increase among the 126 cities surveyed (up 16.6% y-o-y)—second only to Hong Kong West Kowloon (up 19.5% y-o-y). 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% y-o-y, with the Americas up 2.3%, EMEA up 2.1% and Asia Pacific up 2.7%.
“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,“ said Richard Barkham, global chief economist, CBRE. “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.
Europe Middle East & 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 y-o-y 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/ft² or €1,375.92/m²).
Olesya Dzuba, director of research department CBRE in Russia, said: “For the last nine months Moscow ranks 11th in the top 50 world’s most expensive office locations. The most expensive offices in Moscow are located in close proximity to the Kremlin area and Tverskaya Street. Asking rental rates for class A Prime offices reach $1,200/m²/year (€1,057.83/m²/year) net of operational expenses and VAT. The upper bound of the operational expenses in class A Prime is at $250/m²/year (€220.45/m²/year). The average rental rate for class A Prime is $800-900 (€705.44-793.58). This range of rates is the lowest since the crisis of 2008.”
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. So occupancy cost growth will 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 $200/ft² (€1,897.83/m²) Hong Kong Central’s double-digit growth in occupancy costs was fuelled 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/ft² or €882.49/m²), 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/ft² (€1,300/m²).
Several energy-centric markets experienced material drops in occupancy costs, including Calgary (Downtown and Suburban), Houston (Suburban) and Denver (Suburban).
In the US, 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 US markets covered in this survey.
Mexico City remained the most expensive market in Latin America, posting an office occupancy cost of $65/ft² (€616.79/m²) and ranking as the 39th most expensive market globally. Both Brazilian markets, Rio de Janeiro and São Paulo, saw declines.
