Hong Kong Central is the world’s most expensive business location ahead of London and Tokyo, according to the latest Prime Office Occupancy Cost survey from property firm CBRE.
Its global research and consultancy team’s reports shows that Asia Pacific now dominates the top ten. But it is San Francisco that has been the strongest with a year on year increase in prime occupancy costs of 36.4% driven by the technology sector.
At the top Hong Kong Central led with overall occupancy costs of US$246.30 per square foot, followed by the West End of London at US$219.81. Tokyo was the third followed by Beijing’s CBD and New Delhi’s CBD. Other Asia-Pacific markets in the top ten include Beijing-Finance Street in sixth and Hong Kong-West Kowloon in seventh.
Despite economic headwinds, occupancy costs increased by an average of 2.1% worldwide over the past year, led by the Americas with a 5.2% annual increase and Asia Pacific with a 2.6% increase. Europe, the Middle East and Africa continued to be hindered by economic recession in much of Europe and recorded a 0.4% decrease in prime occupancy costs. Prime office occupancy costs increased in 74 markets, decreased in 37 office markets and had no change in 22 markets.
‘The global office market recovery cooled over the past year, hampered by the ongoing European debt crisis, a deceleration of growth in emerging markets and ubiquitous uncertainty created by the fiscal cliff in the US,’ said Raymond Torto, CBRE’s global chief economist.
‘However, tight market conditions, strong demand for high quality space and low levels of new construction continue to drive up occupancy costs in many prime office markets across the globe,’ he added.
CBRE tracks occupancy costs for prime office space in 133 markets around the globe. Of the top 50 most expensive markets, 19 are in EMEA, 18 are in Asia-Pacific and 13 in the Americas.
Asia Pacific had 18 markets ranked in the top 50 most expensive, with four of the top five. Hong Kong Central’s position as the most expensive office market continued to be driven by limited new supply and tight market conditions. But despite its most expensive ranking, Hong Kong Central experienced the largest annual decrease worldwide, a fall of 17.8%) as cost cutting among large financial institutions and big banks dramatically lowered prime office occupancy costs. The most expensive market in the global ranking from the Pacific Region was Sydney at US$119.04 per square foot in fourteenth position.
North America is led by New York’s Midtown, which posted an office occupancy cost of US$114.30 per square foot on the strength of a 7.3% year on year increase. The New York Midtown market was ranked 16th globally.
San Francisco (Downtown) experienced the largest year on year increase, at 36.4%, of the 133 markets tracked with an occupancy cost of $90.00 per square foot. San Francisco’s Peninsula market was not far behind, rising 28.6% to reach $62.10 per square foot.
Many of the markets with the largest increases in prime occupancy costs have seen strong demand from the energy, automotive or high tech sectors, as well as low vacancies and limited prospects for new supply. As a result, occupancy costs have increased rapidly in San Francisco, Seattle (Suburban), Calgary (Downtown), Vancouver (Downtown), Denver (Downtown) and Houston (Suburban).
In Latin America, São Paulo remains the most expensive market, posting an office occupancy cost of US$130.07 per square foot and ranks as the 10th most expensive market globally. Meanwhile, with an occupancy cost of $121.40 per square foot, Rio de Janeiro is also in the top 12. In addition to London’s West End ranking as the world’s second-most expensive market, other markets in the region that top the list are Moscow with occupancy cost of US$172.82 per square foot and London’s City with US$131.76 per square foot.
Continuing economic contraction in the Eurozone led to double digit or near double digit declines in prime occupancy costs in Thessaloniki and Athens in Greece, and Malaga in Spain, as business sentiment suffered and occupiers remained cautious. Subdued demand also led to occupancy cost declines in Portugal and Ireland.
Hong Kong chief executive Leung Chun-ying has announced a series of measures on increasing the future supply of private and public housing as well as increasing residential land supply by changing land use.
In an ambitious plan he has pledged to build at least 100,000 public rental housing (PRH) units over the five years starting from 2018. There is a severe shortage of affordable housing in Hong Kong, with many locals priced out of the market.
He also plans to further relax restrictions on wholesale conversion of industrial buildings as this provides financial incentives to landlords, which helps increase commercial and residential land supply shortly, and to put forward land reclamation plans.
Property consultants Knight Frank welcomed the broad outline of the plan for the long term but said that residential supply is still expected to lag behind demand in the near future. The local residential market is expected to experience only limited impact in the short term.
It predicts that home prices are set to remain stable with upward or downward movements within 5% this year.
Alnwick Chan, executive director at Knight Frank in Hong Kong said that the governments direction for long term housing policy is correct, adding that government departments should be active in processing applications for increasing development density of private residential projects.
He added that the Lands Department should review the procedures for land administration, land disposal and land premium application.
His colleague, Thomas Lam, director and head of research for Greater China at Knight Frank, said that the demand for private housing units in Hong Kong reaches around 20,000 units per year, which is in line with the supply target set in the Policy Address.
ґHowever, the new policies involve time consuming collaborations among a number of government departments, meaning these new supply will not come online until 2015 to 2016 the earliest. Therefore, in the short term, demand will continue to outstrip supply and market expectation for home price development is unlikely to change, he explained.
ґHowever, we can see the governments determination to regulate the demand-supply imbalance in the market. The government may introduce further tightening measures should home prices surge again. We therefore expect home price movements to be limited to 5% this year,Ғ he added.
The Royal Institution of Chartered Surveyors also welcomed the announcement and said the plan should address the critical shortage of land and housing issues which are affecting the overall competitiveness.
It said it supports the idea of reclamation outside Victoria Harbour as it is an effective way to build up a sustainable land reserve to meet long term demand and future needs of the city. But it said that in the forthcoming stage of public consultation, it is important for the administration to present to the public the vision as well as the overall development plan for North Lantau, Lung Kwu Tan in Tuen Mun, Southwest Tsing Yi and Ma Liu Shui.
The organisation also welcomed a commitment to review subsidised housing policies, including the My Home Purchase Plan (MHPP) and new Home Ownership Scheme (HOS), allowing more efficient use of land to cater for the needs of Hong Kong residents better and improve the living environment.
RICS Hong Kong feels that this policy address is heading towards the right direction in addressing the shortage of commercial and residential space,ђ said Kenneth Kwan, chairman of RICS Hong Kong Board.
With such an ambitious plan, it is important for the various bureaux and departments to be working together to achieve these goals, and thatђs why RICS Hong Kong is in favour of a centralised agency to coordinate these projects, he added.