HONG KONG: Hong Kong's office occupancy cost is the highest in the world in 2009, according to the latest Global Office Real Estate Review published by Colliers International.
Despite the year-on-year (YoY) drop of 4.8% in occupancy cost from US$181.73 psf in the Central Business Districts (CBD) to US$178 psf, Hong Kong has moved from second to the top in the ranking of 50 countries.
Colliers Hong Kong Research & Advisory director Simon Lo said the Hong Kong market has been undergoing dramatic changes since late last year.
“During the first two months of 2009, there was a 16% decline in Grade A office rents in the CBD. The vacancy rate increased from 4% to 5.1%. Lease structure has also become more common among key occupiers in the financial sector.
“Given the substantial consolidation of the global economy, the current downward trend will certainly continue throughout the year 2009,” he says.
Among most major financial districts, office vacancies in Hong Kong and Shanghai as of end-2008, doubled from that of mid year 2008 from 1.5% to 4% and from 4.7% to 10.2% respectively. In the ranking of Grade A office rents, Hong Kong took the top spot with Tokyo second and Singapore third.
"All the regions in the world are now experiencing a so-called “recessionary” conditions. As a result, demand for office space is substantially reduced with all regions reporting higher vacancies and falling rents, stated the report covering cities such as Moscow, Tokyo, London and Dubai.
According to the report, a further weakening in fundamentals is expected this year with little prospect of recovery until early next year.
In the United States, new supply is anticipated to stay relatively high for the next six to 12 months, while demand is expected to remain subdued at the end of 2009 and into next year. Leasing conditions will continue to be exceptionally weak as businesses are quick to dispose of excess space due to job cuts. The office space market is unlikely to show any signs of expansion until well into 2010.
In the Europe, Middle East and Africa office markets, average vacancy rate jumped in the 2H2008 rising from 7.7% to 8.9% by year-end. Many developments were completed; and was more pronounced in Eastern Europe and Middle East markets.
The average Grade A rents in the region dropped by 6% in 2H2008, and further rdeclines are forecast for 2009. There are exceptions because several major markets including Copenhagen, Frankfurt, Munich, Rome and Abu Dhabi saw increasing rents.
In this environment, landlords are offering increased incentives and rent free periods in order to protect headline rents, and tenants are seeking ‘move-in-ready’ office space to further cut costs.
In 2008, global office transactions fell by 58%, from US$1.2 trillion in 2007 to just over US$504 billion in 2008. Australia- New Zealand were the hardest hit, falling 77%, followed by the US declining 75%, UK, 58% and Western Europe, 48%. Middle East was the only region seeing an increase in investment sales, a 72% increase over 2007 level to US$5 billion in transactions.