Hong Kong and London retained their spots atop the world’s priciest premium office markets while New York replaced Beijing in the third spot, according to JLL’s latest Premium Office Rent Tracker. The report, which compares like-for-like occupation costs across 35 markets in 31 cities worldwide, shows a tightening amongst the world’s premier markets over the past year as well as a significant uptick in rents in the priciest cities.
“Affordability is a concern in many cities and, in order to remain competitive, the top global cities will need to execute bold urban transformation projects to ensure a supply of appropriately priced and flexible commercial space,” said JLL Global Research Director Jeremy Kelly.
Supply crunch boosts Hong Kong rents
Hong Kong’s Central submarket occupancy cost for premium office space reached new heights at US$302 per square foot per year, which includes extras such as service charges and property tax. That’s up from US$262 a year ago. Prices were again pushed up by strong demand and an extreme supply shortage, resulting in a miniscule vacancy rate of just 1.5 percent in Hong Kong, second only to the 1.4 percent vacancy in Beijing’s Finance Street submarket.
While Hong Kong Central’s top spot in the ranking is not new, its sizeable lead over the rest of the field is. Occupancy costs for premium space in Hong Kong Central are now in excess of 50 percent greater than either London or New York as companies from mainland China look to Hong Kong for top office space. But that robust rent growth could plateau with surrounding submarkets offering more than 50 percent discounts to prime.
U.S. markets rise while London moderates
Midtown New York overtook Beijing as the world’s third most expensive premium office market with total occupancy costs edging up to US$194, compared to $US171 last year. New York saw more than 10 percent rent growth, outperforming China’s Alpha cities Beijing and Shanghai.
“We continue to see upward rent pressure on the most coveted office space as vacancies shrink and the nation’s gateway cities wrestle with how to best strike a balance between prestige and affordability,” said JLL International Director Christopher Roeder. “Moderating rent growth in San Francisco is an example of the challenges these cities face.”
San Francisco fell by one position to eighth as rent growth there showed signs of softening. Boston moved up the ranking four spots and cracked the top 12 for the first time, while Washington, D.C. remained stable in 13th place.
Premium rents in London’s West End saw a reduction of 15 to 20 percent from a year ago as hedge funds and private equity firms adopted a wait-and-see approach following the Brexit vote.
“These high value financial occupiers that typically pursue premium office space in the West End core markets have turned to a cautious approach in their leasing strategies as they wait for more economic clarity following Brexit,” said Neil Prime, JLL’s Head of UK Office Agency.
Global Research Director Jeremy Kelly