London usurps Hong Kong to reclaim costliest office space crown
London’s West End has overtaken Hong Kong’s notoriously saturated market as the most expensive destination to lease office space in the world, according to a recent study by property consultancy DTZ.
Annual occupancy costs for grade A office space in the special administrative region of China fell by 12% to $22,190 per workstation by the close of 2012, a fall thought to have been initiated by economic uncertainty causing businesses to downsize to properties outside the centre.
Its status as one of the most densely populated regions in the world, coupled with the severity of the previous economic boom, led to rental rates in the traditional central business district (CBD) becoming all but the preserve of the wealthiest corporations.
David Ji Yanxun, head of Greater China research at DTZ, said: “There is new supply in areas outside [the CBD] such as Hysan Place in Causeway Bay and other offices in Kowloon East. Companies that need a lot of floor space and don't need to stay in Central moved to other areas to lower occupancy costs".
He pointed to the 1.5m sq ft of additional prime office space in the newly constructed secondary CBD, Kowloon East, as a primary cause of the fall in rental rates.
Meanwhile, the report found that rents in London’s West End remained relatively stable throughout 2012 at $23,500 per workstation pa, allowing it to reclaim its dubious title without any significant socio-economic adjustments.
Geneva and Tokyo remained third and fourth in the rankings respectively, whilst Beijing – which held the title of costliest office destination on China’s mainland last year – fell to 28th with an average annual occupancy cost of $10,410.
The cumulative global office rental price rose by 1% in 2012, up to an average of $7,495 per workstation according to the latest figures.
The report was compiled from data collected by DTZ on 126 CBD’s across 49 countries, with each location measured on the average cost of a workstation per annum, including rent, maintenance, tax and utilities.
Despite this year’s anomalous fall, commentators expect a quick recovery for occupancy rates in Hong Kong over the coming two years, with forecasts suggesting a potential rise of 7.9% pa from the start of 2012 to the same period in 2013.
Daniel Wong Hon-shing, chief executive at commercial realtor Midland IC&I, went further with his prediction, saying: “The decline in prime grade A office rents should have ended and will remain stable this year, while for grade A strata title buildings, rent may jump by 10 per cent".
Similarly, Ji Yanxun believes that the combination of a brighter economic outlook, restricted office stock and interest from mainland ventures could cause the average rental rates to increase back from HK$103 - HK$104, to around HK$108 by the end of the year.
He said: "I think office rents in Central should remain stable this year after the decline last year, as the mainland economy is still doing quite well and with some mainland companies still looking for offices in Hong Kong".