Seven of the 10 most expensive markets for commercial office property are in Asia, according to a report by CBRE, the global real estate services firm.
While London’s West End is the priciest location for office tenants at $273.63 per square foot per year, Hong Kong Central and two Beijing districts take the next three slots, the CBRE Global Prime Office Occupancy Costs survey showed.
New Delhi, Tokyo and Shanghai also appear in CBRE's top-10, along with another Hong Kong district – West Kowloon.
Hong Kong's Central district is the world's second-most expensive office location at $250.61 per square foot, while Beijing's Finance Street and the Chinese capital's Central Business District are third and fourth at $197.75 and $189.39 per square foot, respectively.
“Since there is no new supply coming into the [Asian] markets, vacancy rates are at lows,” Henry Chin, head of research at CBRE Asia-Pacific, told FinanceAsia, citing the extreme example of Beijing's Finance Street which has a current vacancy rate of 0.1%.
Hong Kong’s Central district, where just 3.9% of total office space is vacant, houses the Asian headquarters of numerous global banks including HSBC, Goldman Sachs and Standard Chartered.
Central is also a preferred address for many mainland Chinese companies, who have been a major source of leasing demand in recent years, Marcos Chan, head of research at CBRE Hong Kong, Macau and Taiwan, told FinanceAsia.
New Delhi’s Connaught Place – at $158.47 per square foot – is sixth on the list, while West Kowloon, across the harbour from Hong Kong Central, is the world's seventh-most expensive office district at $153.65 per square foot.
The West Kowloon market is mainly being driven by the Hong Kong International Commerce Centre, Hong Kong’s tallest building, which has become the second-best option for many global banks after the Central district, according to Chan.
“The last few years have seen many reputable banks relocating to ICC from Central for two major reasons – cost and space availability. ICC offers tenants discounted rates compared to Central rents, while just being one subway station away from the core CBD,” he said.
Rents are expected to remain stable this year across all Hong Kong markets, Chan said, with potential mild increases in Central due to expansion by incumbent mainland Chinese groups and interest from Chinese newcomers.
“Low space availability and cost controls will prevent many of the big multinationals from moving around,” Chan said.
Demand in the Beijing, Shanghai and New Delhi districts on the list is being driven by domestic and regional groups, Chin said, with multinationals again relatively muted. This demand is expected to continue in 2015.
New York, Schmoo York
It might at first glance be surprising that New York does not appear in the top-10 list considering its key role in global finance, along with London.
“We mustn’t forget that US markets such as NYC have experienced rental corrections since the global financial crisis, and real estate fundamentals are just starting to recover,” Chin said. “Rental growth started to gather momentum in late 2013.”
Tokyo (Marunouchi Otemachi) – ninth at $136.46 per square foot – and Shanghai (Pudong) – 10th at $127.89 per square foot – are the other two Asian markets on the list. Moscow is fifth at $165.05 per square foot and London City is eighth at $152.67 per square foot.
