Global average office occupancy costs to show moderate growth

KUALA LUMPUR: Global average occupancy costs per workstation saw a 4% decline in 2009, and the overall global average costs are projected to show moderate annual growth of 1.7% till 2013, said a DTZ Research report entitled Global Occupancy Costs – Offices 2010.

London’s West End retained its title as the world’s most expensive office location but DTZ expects Hong Kong, ranked fourth, to catch up soon, and surpass Tokyo as the second most expensive office location by 2013 with occupancy costs increasing by US$6,800 to US$23,800.

In 2009, despite being badly hit by the financial crisis, Tokyo’s occupancy costs per workstation fell by a moderate 9%, retaining its top position in the regional ranking and second globally.

Hong Kong, meanwhile, remained the second most expensive office location in Asia Pacific during 2009 despite a 22% fall in occupancy costs per workstation.

Although Asia Pacific cities dominated the list of 10 least expensive locations, the region might, according to the report, experience the most rapid average annual growth at 2% over the forecast period of all the regions, with the emerging markets expected to return to strong growth in the near term.

“Three of the five fastest growing markets – Hong Kong, Guangzhou and Bengaluru – are located there,” the report noted.

There is, nevertheless, substantial divergence in expected growth between locations within Asia Pacific, with some markets set to experience falling occupier costs over the forecast period while others may see strong growth.

“Local market dynamics drive our forecasts, since we have both top and bottom five performers in China and India, the region’s largest economies,” it said.

Apart from Hong Kong, costs are forecast to increase most in Guangzhou and the key IT business centre of Bengaluru. Beijing and Sydney make up the rest of Asia Pacific’s top five, as far as projected increases in occupancy costs are concerned.

On the other hand, “Our forecasts show that occupiers in Singapore, Delhi and Chennai (Madras) are set to benefit from continued declines in occupancy costs. This is driven by surplus space driving down rents in the near term.

At 51% (in local currency), the report said occupiers in Singapore saw the largest decrease in occupancy costs per workstation in Asia Pacific, triggered by weak demand and a substantial amount of new supply, which dragged down rents and thus total occupancy costs.

“Other markets to witness double digit declines in occupancy costs included Shanghai (Jingan), Bengaluru and Mumbai, where similar imbalances of demand and supply prevailed. The only two markets to record increases in costs were Seoul and Adelaide. This is especially strong given the regional Asia Pacific average 12% decline in 2009 (in local currency),” it noted.

At the same time, the supply of good-quality space will increase. As such, new occupiers in these markets will benefit from a wider and better pool of properties to choose from – the office market will offer tenants real value for money in the current climate.

Hong Kong is catching up on Tokyo as most expensive office location in Asia Pacific (picture from Reuters)