According to a new report from global real estate consultant JLL, Central District of Hong Kong continues to command the world's most expensive rent for premium offices for the fourth year in a row. The submarket boasts occupancy costs - including rent, taxes and service charges - that are 60 per cent more expensive than New York's Midtown and nearly 75 per cent more expensive than London's West End.
According to JLL, the high occupancy costs of Hong Kong's Central District are driven by Chinese firms snapping up Grade A office space, although this demand has decreased in the last quarter because companies have begun to look for more affordable office spaces in decentralised locations.
"Hong Kong is a key financial hub in Asia, and Central is still the most important financial district. But vacancies are low in Central, which has pushed office rents up. Companies are now looking beyond Hong Kong's traditional core office markets with more than half of all new lettings in the third quarter of 2018 taking place in decentralised locations. Hong Kong East and Kowloon East have emerged as favoured alternatives. Notable tenants who have shifted to Hong Kong East recently include Ernst & Young and Baker McKenzie," says Denis Ma, Head of Research, JLL Hong Kong.
While Hong Kong East has traditionally been seen as a back office location by multinationals, it is increasingly being viewed as a prime office location.
"Total occupancy costs in Hong Kong East are 64 per cent lower than in Central while Kowloon East is 76 per cent lower than Central. The finance, insurance, real estate and business services sectors have been shifting to Hong Kong East, and now account for about 37 per cent of the tenant base. More tech and legal companies are also relocating from Central to Hong Kong East," adds Ma.
Districts in cities in Greater China (Hong Kong, Beijing, Shenzhen and Shanghai) now represent six of the top 10 most expensive premium office markets in Asia. As a result, decentralization is taking place in many Chinese cities as companies look to make savings, with premium occupancy costs averaging US$338 per square foot in Hong Kong's Central, US$189 per square foot in Beijing's Finance Street, and US$131 per square foot in Shanghai's Pudong district. Meanwhile Singapore made its way into the top 10 for Asian cities, up from 14th place in 2017.
The banking and financial services industry are the top occupiers of premium office space globally, as the leading sector in more than half of the 72 markets covered.
"High-value, high-margin businesses in financial services such as private, corporate and investment banking firms, rent premium office space in Beijing, Shanghai, Tokyo and Singapore. While cost remains a key factor, these companies prioritize access to talent and the need for amenities when selecting their next office location. They target premium quality buildings to attract and retain top talent, which also helps to enhance their brand image," says Jeremy Sheldon, Managing Director, Markets and Integrated Portfolio Services, JLL Asia Pacific.
Corporate occupiers across all industries are seeking to consolidate and streamline their portfolios in strategic locations. There is growing recognition of the role that real estate plays in talent attraction and retention. Hong Kong's Central is a prime example for its excellent transport connectivity, local amenities, and the quality of digital infrastructure - factors that organizations consider when choosing their next office location.