HONG KONG (Reuters) - Hong Kong continues to be the most expensive place in the world to rent office space, according to research from a property brokerage.
And despite an expected slowdown over the next 12 months, Hong Kong would likely retain its world-leading position, Colliers International said on Monday.
Gross rents for Class A office space averaged $213.70 per square foot per year as of the end of June, the Global Office Highlights report from Colliers showed. That is an increase of 11.3 percent from the end of last year, and of 32.3 percent from the middle of last year.
Hong Kong again topped the rankings for the world’s most expensive cities to rent office space, ahead of London’s West End, at $150.20 per square foot per year, and Paris at $111.92 per square foot per year. Tokyo and the City of London ranked fourth and fifth, according to Colliers.
Rents have been driven higher in Hong Kong by exceptionally tight vacancy rates in Central, the heart of the city’s business district. The city recorded the lowest vacancy rate in Asia, at just 3.7 percent. Conditions for businesses looking to expand are unlikely to improve anytime soon, with little new supply due to come on the market over the next two years.
Geneva, with a vacancy rate of 2.5 percent, has the tightest office market on the planet, according to Colliers.
Simon Lo Wing-fai, executive director of research and advisory at Colliers, said he has just revised his forecast for Hong Kong’s office market, and now expected a decline in rents of 8 percent between the third quarter and the same time next year.
Companies that are coming up for rental renewals, however, have started to shift their focus from securing more space to signing tenancies with cheaper rents.
“Financial companies might change their strategy from expansion to cost saving,” Lo said. “The pace of hiring expectation is getting less positive, and business prospects and financial prospects don’t look very strong.”
Only 456,225 square feet of new office space was under construction in Hong Kong as of June, Colliers said, including Grade A, B and C space. That’s less than in any other city in Asia. Guangzhou, immediately across the border in the mainland Chinese province of Guangdong, is the most active city in the world in terms of office space, with 31.3 million square feet of office space under construction.
Vacancies tumbled across Asia, down 121 basis points to an average of 11.4 percent as of the end of June, as the region continued to post decent economic growth. Colliers said the need for more global office space had been called into question by the economic slowdown and uncertainties of the past few months, and “will need to be monitored closely in the coming months”.
Rents rose an average of 2.9 percent across Asia in the first half. Those modest gains may face headway from a high rate of construction, with more than 5 million square feet of office space under construction in each of the following cities: Bangalore, Beijing, Chengdu, Chennai, Delhi, Guangzhou, Ho Chi Minh City, Mumbai, Shanghai and Tokyo.
Reporting by Alex Frew McMillan; Editing by Chris Lewis