Hong Kong Is World's Most Expensive Office Site

Fuelled by the economic recovery, Hong Kong entered 2011 as the most expensive office location in the world, according to international property consultant DTZ. Occupancy costs per workstation in Hong Kong’s prime district of Central and Admiralty surged by 31% year-on-year (in local currency) in 2010. This pushed Hong Kong up from second in 2010 to first in 2011, ahead of London’s West End, Geneva, Tokyo and Zurich. The increase in Hong Kong was driven by a surge in prime rents on the back of healthy demand and a shortage of space.

 

According to the fourteenth edition of DTZ’s annual ‘Global Occupancy Costs: Offices’ survey, Asia Pacific will see the most rapid growth in average occupancy costs globally, with an average annual growth rate of 3.7% to 2015.

 

Growth will be driven by above average increases in low cost locations in China and India. For example, occupancy costs per workstation in the southern Indian IT centre of Bengaluru are forecast to increase by an annual average of 9.75% between 2011 and 2015. DTZ Research forecasts that growth in occupancy costs in Asia Pacific will be double the growth expected in EMEA and the US.

 

Growth in Asia Pacific will also be driven by expanding demand from multi-national companies, especially in India and China, and limited Grade A space. Vacancy rates will begin to fall, despite the fact that 2011 will represent a peak year in terms of development in the region. Inflationary pressure is also likely to have an impact. In India, double-digit inflation has led to significant increases in outgoings in the past year.

 

The report also reveals that during 2010, although global average office occupancy costs showed no change, there was significant movement in costs between regions, driven by the two-speed global economic recovery. Costs re-bounded sharply in Asia Pacific, where average office occupancy costs increased by 9.7% (using USD conversion), and in Central and South America. However, occupiers in the vast majority of EMEA and North America continued to benefit from cost savings.

 

DTZ’s report also compares the cost of occupying prime and secondary space in select markets. Hong Kong is the most expensive location in the world for occupying secondary space, as well as prime. The biggest difference in the cost of occupying prime and secondary space in Asia Pacific is seen in Shanghai (Jingan), where occupying prime space costs 80% more than taking space in an average grade building.

 

Within Asia Pacific there is a big difference in costs between the mature and emerging markets. Alongside Hong Kong, other mature markets including Tokyo, Sydney and Singapore are amongst the top 30 most expensive office locations globally. In contrast, emerging markets such as Bengaluru and Chennai are amongst the least expensive globally. The 10 least expensive office locations globally are dominated by tier two cities in mainland China, although many, such as Shenyang, experienced a big increase in occupancy costs during 2010 as a result of extreme competition for a very limited amount of prime space.

 

Despite the overall increase in average occupancy costs in Asia Pacific, costs fell in a number of markets. Occupiers in Hanoi saw the largest decrease in occupancy costs per workstation in Asia Pacific in 2010, falling 14% in local currency. A combination of weak demand and ongoing new supply benefitted tenants in both Hanoi and Ho Chi Minh, as pressurised landlords upped incentives in an attempt to let space. Other markets to witness declines in occupancy costs included Tokyo, Canberra, Wellington and Dalian, although Tokyo still entered 2011 as the second most expensive location in Asia Pacific and fourth globally.

 

 

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