Hong Kong’s Central tops list of world’s most expensive office markets

Premium office occupancy costs in Hong Kong’s Central now 60 per cent more expensive than New York’s Midtown.

Hong Kong’s Central has the world’s most expensive rent for premium offices for the fourth year running, according to data from global real estate consultant JLL. The submarket boasts occupancy costs – including rent, taxes and service charges – that are 60 per cent more expensive than New York’s Midtown and nearly 75 per cent more expensive than London’s West End.

JLL’s Premium Office Rent Tracker (PORT), now in its fourth edition, crunches data on the achievable rent in the highest quality building in the premier office districts of 61 cities.

According to JLL, the high occupancy costs of Hong Kong’s Central are driven by Chinese firms snapping up Grade A office space, although this demand has decreased in the last quarter. This has led some companies to search for more affordable office locations in decentralized locations.

“Hong Kong is a key financial hub in Asia, and Central is still the most important financial district.

But vacancies are low in Central, which has pushed office rents up. Companies are now looking beyond Hong Kong’s traditional core office markets with more than half of all new lettings in the third quarter of 2018 taking place in decentralized locations. Hong Kong East and Kowloon East have emerged as favored alternatives. Notable tenants who have shifted to Hong Kong East recently include Ernst & Young and Baker McKenzie,” says Denis Ma, Head of Research, JLL Hong Kong.

While Hong Kong East has traditionally been seen as a back office location by multinationals, it is increasingly being viewed as a prime office location.

“Total occupancy costs in Hong Kong East are 64 per cent lower than in Central while Kowloon East is 76 per cent lower than Central. The finance, insurance, real estate and business services sectors have been shifting to Hong Kong East, and now account for about 37 per cent of the tenant base. More tech and legal companies are also relocating from Central to Hong Kong East,” adds Ma.

Districts in cities in Greater China (Hong Kong, Beijing, Shenzhen and Shanghai) now represent six of the top 10 most expensive premium office markets in Asia. As a result, decentralization is taking place in many Chinese cities as companies look to make savings, with premium occupancy costs averaging US$338 per square foot in Hong Kong’s Central, US$189 per square foot in Beijing’s Finance Street, and US$131 per square foot in Shanghai’s Pudong district. Meanwhile Singapore made its way into the top 10 for Asian cities, up from 14th place in 2017.

The office scene in Ho Chi Minh City is also heating up with the presence of high-end tenants from outside the country. Total office supply in HCMC office market with 2 million sqm, 5 times lower than of Bangkok market, coupled with high demand from large corporations, led to a shortage of high quality office space in the downtown area.

The premium occupancy costs averaging in Ho Chi Minh City recorded around US$59 per square foot, up nearly 7% over the same period last year. Notably, the highest gross rent was hit a record high rent in nearly half a decade with US$86 per square foot, quoted in one of the most prime Grade A buildings in the market.

Financial services companies are willing to pay for premium office space

The banking and financial services industry are the top occupiers of premium office space globally, as the leading sector in more than half of the 72 markets covered.

“High-value, high-margin businesses in financial services such as private, corporate and investment banking firms, rent premium office space in Beijing, Shanghai, Tokyo and Singapore. While cost remains a key factor, these companies prioritize access to talent and the need for amenities when selecting their next office location. They target premium quality buildings to attract and retain top talent, which also helps to enhance their brand image,” says Jeremy Sheldon, Managing Director, Markets and Integrated Portfolio Services, JLL Asia Pacific.

Corporate occupiers across all industries are seeking to consolidate and streamline their portfolios in strategic locations. There is growing recognition of the role that real estate plays in talent attraction and retention. Hong Kong’s Central is a prime example for its excellent transport connectivity, local amenities, and the quality of digital infrastructure – factors that organisations consider when choosing their next office location.

The average total occupancy costs of the top 20 markets in Asia Pacific are as follows:

CountryMarketTotal occupancy cost (USD/sq./yr.)Total occupancy cost (USD/sq.m/yr.)
1Hong KongHong Kong, Central$338$3,638
2ChinaBeijing, Finance St$189$2,034
3ChinaShenzhen$155$1,668
4ChinaBeijing, CBD$153$1,647
5JapanTokyo, Marunouchi$148$1,593
6IndiaDelhi, Connaught Place$142$1,529
7ChinaShanghai, Pudong$131$1,410
8Hong KongHong Kong East$122$1,313
9JapanTokyo, Shinjuku$118$1,270
10SingaporeSingapore$108$1,163
11ChinaShanghai, Puxi$102$1,098
12AustraliaSydney$102$1,098
13South KoreaSeoul$99$1,066
14IndiaMumbai$96$1,033
15JapanOsaka$94$1,012
16Hong KongHong Kong, Kowloon East$83$893
17ChinaGuangzhou$76$818
18TaiwanTaipei$66$710
19VietnamHo Chi Minh City$59$635
20IndonesiaJakarta$57$614

Notes:
In this fourth edition of JLL’s Premium Office Rent Tracker (PORT), we compare like-for-like occupation costs across 72 major office markets in 61 cities. The 2018 edition includes a further 18 markets from 2017, where we included 54 major markets in 46 cities of differing function and evolution.

Premium office rents refer to the ‘top achievable’ in units over 10,000 square feet (or approximately 1,000 square meters) in the premium building in the premier office district of each city. In tall buildings, the middle zone is used as the benchmark. The report excludes rents that represent a premium level paid for a small quantity of space or highly prestigious units where a significant premium applies.

Total occupancy costs are calculated by combining the net effective rent with additional costs (e.g. service charges, taxes).

Editors Note:
ITV-Asia would like to thank Jones Lang LaSalle Asia Pacific for granting us the rights to reproduce this article. For more information on JLL, visit them on the web at: https://www.ap.jll.com/asia-pacific/en-gb