Offices in world’s most connected cities come with a high price

PETALING JAYA: The world’s most important, influential and interconnected cities with the deepest pools of firms and talent continue to command the highest office occupation costs, with Hong Kong topping the chart of global real estate firm JLL’s Premium Office Rent Tracker. Hong Kong is followed by London (West End), New York (Midtown), Beijing, Tokyo and Shanghai.

“The world’s most important and interconnected cities dominate the top spots in the rankings, JLL head of research for Asia Pacific Megan Walters said. “There is a clear demand for them as seen in how vacancy rates are less than 2% in three out of these six gateway cities, specifically Hong Kong, Beijing and Tokyo,” she said in a statement in conjunction with the release of the report.

Hong Kong remains the most expensive office location, carrying a price tag of US$302 (RM1,344) psf, a new high for the city compared with US$262 in 2015.

According to JLL, Hong Kong’s top position is a testament to its attraction as a “globally fluent” business hub with a range of internationally recognised strengths.

“Its central district has seen robust growth in premium rents over the past 12 months on the back of demand from mainland Chinese firms and very limited supply.

“However, affordability and lack of available space are concerns that are likely to accelerate decentralisation to nearby growing core districts that offer more than 50% discounts to premium rents in Hong Kong Central, a trend supported by infrastructure works,” said JLL in the report.

Meanwhile, London, in second place, has been impacted by the Brexit vote as corporate occupiers adopt a more cautious approach until there is greater political and economic clarity. JLL also cited that the combination of sterling depreciation and a modest reduction in net effective rents have caused costs in US dollars to lower by 15% to 20%.

“Any further downward pressure on London rents could see it fall to the third place in 2017, [possibly] overtaken by New York (3rd place) where premium rents have grown by 10% this year and a further uplift is in prospect in 2017,” it said.

Moving on to China, its major cities — Beijing (4th place) and Shanghai (6th place) — have slipped marginally in the highest-office-rent list.

“While premium rents have been maintained in Beijing and Shanghai, both cities have dropped one place in the global ranking due to the relative outperformance of New York and Tokyo (5th place), respectively,” said the report.

Tokyo’s move up the list is supported by high leasing activity and bolstered by large ticket pre-commitments. A further boost from a strengthening yen has seen the city move into fifth position, overtaking Shanghai.

“The market [Tokyo] has potential to move ahead of Beijing in cost terms during 2017,” said JLL.

Notable by their absence from the top 10 are two established world cities — Singapore (18th place) and Paris (20th place). According to JLL, Singapore has seen a rental correction as new supply has come on stream.

According to Walters, this has put Singapore at a competitive advantage over other more costly Asian gateways.

Meanwhile, Paris has witnessed an increase in demand for iconic buildings which, combined with a lack of immediately available supply, should push up premium rents in the coming months.

On trends to watch in the near future, JLL noted that affordability is still a concern in many cities and in order to remain competitive, the top global cities will need to execute bold urban transformation projects to ensure a supply of appropriately priced and flexible commercial space.

“Traditionally, premium office space has been the domain of high-value, high-margin businesses in financial services, professional services and high-end luxury goods. More recently, a greater number of tenants from the technology sector are targeting premium buildings to attract top talent and enhance their brand equity,” said JLL.

This story first appeared in TheEdgeProperty.com pullout on Dec 16, 2016, which comes with The Edge Financial Daily every Friday. Download TheEdgeProperty.com pullout here for free.