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.