According to CBRE Research's semi-annual Global Prime Office Occupancy Costs Survey, London's West End was the world's highest-priced office market for the second straight year. Hong Kong and Beijing took four of the top five slots in the rankings with Hong Kong's Central, Beijing's Finance Street, Beijing's Central Business District (CBD), and Hong Kong's West Kowloon, rounding out the top four.
London's West End topped the 'most expensive' list, with overall prime occupancy costs of US$273 per sq. ft. per year. Hong Kong (Central) followed, with prime occupancy costs of US$269 per sq. ft. per year, Beijing (Finance Street) at US$191 per sq. ft. per year, Beijing (CBD) at US$183 per sq. ft. per year, and Hong Kong (West Kowloon) at US$162 per sq. ft. per year, rounded out the top five. In total, Asia Pacific was home to seven of the top ten most expensive markets globally.
Prime occupancy costs–which reflect rent, plus local taxes and service charges–increased at a 2.4% annual pace globally, as the world economy continued to gradually improve and the service sector, a key bellwether for prime office space, entered its fourth year of expansion, driving healthy demand for space in top-quality properties.
Prime occupancy costs in Asia Pacific increased by 1.9% year-over-year–from 1.4% in Q1 2015–compared to 3.1% growth in the Americas and 2.2% growth in EMEA.
"The global services sector has grown steadily for four years now, which helps to explain the general uplift in office rents and costs we are seeing worldwide," said Dr. Richard Barkham, Global Chief Economist, CBRE. "Despite the fact that some markets have been hit by the China oil and commodities slowdowns, we expect that most advanced economies will keep growing in 2016 and 2017, which combined with limited availability and relatively muted development levels, will result in moderate 2-3% cost increases."
Dr. Henry Chin, Head of Research, CBRE Asia Pacific, comments, "the TMT sector continues to drive office leasing demand in Asia Pacific, with healthy appetite for prime quality space in search for talents across the region. Domestic financial services companies will also remain the main drivers of leasing activity, although demand will likely moderate after several years of strong growth. Cost saving remains at the top of the occupier agenda with renewals being one of the main themes."
CBRE tracks occupancy costs for prime office space in 126 markets around the globe. Of the top 50 'most expensive' markets, Asia Pacific had the most number of markets featured, with 20 markets ranked.
Shanghai (Pudong) moved into the top ten, rising two places to the ninth spot. Despite the Chinese economic slowdown, demand from financial services firms for prime space in Pudong remains strong and supply remains limited.
"China, where the service sector is still expanding, looked relatively stable, with little change in prime costs in most Chinese markets. One of the goals of China's current economic policy is to expand the service sector–and there is evidence that this is already happening–a secular trend that should support office demand over the long term," adds Dr. Chin.
Hong Kong (Central) remained the only market in the world–other than London's West End–with a prime occupancy cost exceeding US$200 per sq. ft. per annum However, there is some evidence that overseas financial services companies are resistant to continued high costs and may be seeking alternatives to a Hong Kong location.