BrazilHong Kong remains the most expensive office location on the planet
Office space remains a key driver for business performance. It too remains a key cost post. Overall, prices saw a year-on-year increase of 2.4% globally across major cities, and Central Hong Kong continues to be the most expensive place in the world at $306 per square foot – well ahead of London’s West End which takes the number two spot with prices at $235.
Office space is a key component of the business cycle. A good office space can support performance through quality services, low environmental impact, and a smartly arranged office space as well as proximity to staff (less commute) and amenities. Yet good office space also comes at a premium, with some spaces considerably more expensive than others. A new analysis from real estate professional services firm CBRE explores the world’s most expensive office spaces.
Businesses remain in a strong position globally, even in light of various trade tariffs and regional geopolitical uncertainties. Europe has enjoyed strong growth in recent years, while the US has continued its run of lower unemployment and economic growth. Meanwhile, Asia, and particularly China, is the world’s largest growth market, with Asian cities set to generate almost half of the world's economy by 2035. Demand for office space has continued apace, with markets seeing competition for constrained supply increase prices globally.
Year-on-year change in occupancy costs were up 2.4% in Q1 of this year, a 50 basis points rise on the previous quarter. The growth was largely the result of changes in the EMEA region, which saw a 120 basis points increase, offsetting slight weakness in the Americas where market price increases cooled marginally, from 3.6% in Q4 2017 to 3.2% in Q1 2018. The APAC region was relatively stable on 1.7% year-on-year price growth.
Central Hong Kong however is the world’s most expensive area, with prices at $306 per square foot, largely due to the high demand and very limited supply in the semiautonomous city state. London’s West End takes second place, with $235 per square foot, with some of the biggest names in finance, among others, in the district. In third place for most expensive office real estate was Beijing’s Finance Street, with an average price tag of just under $201 per square foot.
Hong Kong - Kowloon and the Beijing CBD also take out fourth and fifth spots respectively, with prices at $189 square foot apiece. New York follows in sixth and seventh spot, with Midtown Manhattan and Midtown-South Manhattan top destinations for firm interest. Asia again featured in the eighth, ninth and eleventh spots (split by London City in tenth at a price of $144) with Tokyo – Marunouchi/Otemachi ($171), New Delhi-Connaught Place ($153) and Shanghai-Pudong ($139) among the top dozen most expensive office locations globally. Shanghai-Puxi, Seoul CBD and Gangnam and Singapore and Shenzhen also featured in the top 25.
Some cities have also seen especially strong increases in price over the 12 months to Q1 2018 – in part driven by commodity price increases in resource driven markets such as Canada, Norway and South Africa – with Durban recording a 21.4% increase in price from business processing outsource companies in particular, and Vancouver (4th), Toronto (8th) and Oslo (5th) also being among the biggest risers.
In Asia, Bangkok saw price increases of 16.9% as the second largest hike across the world, while Hong Kong-Kowloon and Singapore noted respective price increases of 12.2% and 11.1% to be among the top dozen steepest upswings globally. Marseille (3rd), Stockholm (5th), Downtown Manhattan (7th) and Berlin (10th) rounded out the top ten.
Some areas, meanwhile, were noted for contractions in local currency terms in the year to Q1 2018. The firm notes that many of the falls are the result of supply demand imbalances as large projects are completed, including Shanghai-Puxi, which saw a drop of 12.8% to record the second largest fall behind Dubai (-15.4%). Shanghai-Pudong and Jarkata also featured in the top-ten declines across the globe, at -5.5% and -3.3% respectively.
“The dominant trend among markets with notably rising prime occupancy costs is strong demand from the finance, technology and e-commerce sectors,” said Richard Barkham, Global Chief Economist for CBRE. “Markets with declining occupancy costs are primarily affected by supply/demand imbalances resulting from new completions. Since reduced costs due to excess inventory tend to be relatively short-lived, companies looking for space in those markets should move quickly.”
