Hong Kong is world’s most expensive office location

KUALA LUMPUR: Hong Kong was the most expensive office location in the world last year. Occupancy cost per workstation in Hong Kong’s prime district of Central and Admiralty rose by 31% year-on-year driven by a surge in prime rents due to high demand and space shortage, according to the annual DTZ Global Occupancy Cost: Office Survey 2010 released recently.

Hong Kong moved to the top spot ahead of London’s West End (2009’s most expensive office location), Geneva, Tokyo and Zurich.

According to DTZ’s head of Asia Pacific research David Green-Morgan in a statement, Hong Kong is traditionally a volatile and cyclical market, responding very quickly to economic highs and lows.

“This is reflected in the fact that the prime rent took only one year to recover its ground in the wake of the financial crisis. We forecast that Hong Kong will continue to outpace other markets in the region, with the gap between it and other centres widening as occupancy costs per workstation increase by US$9,190 (RM28,000) to reach US$31,250 by 2015. This will be driven by rental growth on the back of strong occupier demand and tight availability,” he said.

The report highlights a big difference in costs between mature and emerging markets. Aside from Hong Kong, other mature markets like Singapore, Sydney and Tokyo are among the top 30 most expensive office locations globally. Surabaya, Indonesia was ranked  the most economical place to rent in 2010 while cities in other emerging markets such as Bengaluru and Chennai in India are also among the least expensive.

Meanwhile, Kuala Lumpur maintained its 24th position in the Asia-Pacific with a slight 2% decline in occupancy cost from 2009 due to competitive pressure on rentals from new completions.

DTZ head of research Brian Koh said the office market in Kuala Lumpur continued to be competitive as a regional office location although it does not have the key advantage of being an international finance centre to attract major financial giants. “The city, however, remained attractive to regional business process outsourcing operations and potentially, to key oil and gas players in line with the government’s efforts to have them represented in the country,” he added.

Hong Kong also came in as the most expensive location in the world for secondary space.  DTZ’s head of occupier services for Asia-Pacific, Adam Catchpole, said occupiers are responding to rising occupancy costs in the prime Hong Kong and Admiralty market by considering other Hong Kong sub markets including Kowloon and Island East.

“They are thinking about which parts of their business need to be occupying prime space. Occupiers are also focusing on using prime space more efficiently, for example through the use of flexible working and shared services,” he said.

According to the report, the biggest difference in the cost of occupying prime and secondary space in Asia-Pacific is seen in Shanghai (Jingan) where occupying prime space costs 80% more than space in an average-grade building.

However, despite the overall increase in average occupancy costs in Asia Pacific, costs fell in a few markets. The largest decrease in occupancy costs per workstation was seen in Hanoi, Vietnam by 14% in its local currency. Both Ho Chi Minh City and Hanoi tenants benefited from a combination of low demand and ongoing new supply as landlords upped incentives in an attempt to let space. Other declines in occupancy costs include in Tokyo, Canberra, Australia, Wellington, New Zealand and Dalian, China.

This article appeared on the Property page, The Edge Financial Daily, March 11, 2011.

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