Asia dominates list of most expensive office markets

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Singapore registers 14.6% year-on-year rise in occupancy costs in Q3, 2014 to US$112.91 psf per year

AS ECONOMIES in Asia continue to outperform their western counterparts, demand for office space in top Asian cities has shown no sign of abating. Asian cities, including Hong Kong, Beijing, Shanghai, Tokyo and New Delhi, dominate the list of the world's priciest office markets, according to global property consultancy CBRE.

In CBRE Research's biannual Global Prime Office Occupancy Costs survey, the Asia-Pacific region had seven cities in the top 10 list of office markets based on occupancy costs in the third quarter of 2014.

Occupier activity in this region was largely driven by domestic corporations and companies in the technology, media and telecommunication sectors, CBRE said.

But based on the rate of growth in prime office occupancy costs in Q3 2014, US cities are found dominating the top 10 list of fastest-growing markets.

The largest annual increases were seen in Dublin, Manila, Seattle, Kuala Lumpur and Singapore. The latter registered a 14.6 per cent year-on-year rise in occupancy costs in the third quarter of 2014 to US$112.91 per square foot (psf) per year as monthly prime rents saw a 16.5 per cent increase to S$12 psf over the period.

"Notwithstanding Singapore's strong rental growth last year, the city's current office occupation cost does not appear out of step with comparable global business centres," said Moray Armstrong, executive director of office services at CBRE.

Mr Armstrong reckoned that limited availability of office space will ensue this year until major new supply kicks in during the second half of 2016, setting the stage for further rental growth in the early part of this year.

CBRE tracks occupancy costs - including rent, local taxes and service charges - for prime office space in 126 markets around the globe.

Of the top 50 most expensive office markets, 20 were in the Asia-Pacific, 20 were in EMEA (Europe, the Middle East and Africa) and 10 were in the Americas.

Half of the markets surveyed saw annual increases in prime occupancy costs in the third quarter of 2014, while one-quarter registered declines.

Globally, prime office occupancy costs rose 2.5 per cent from a year ago in Q3 2014, led by a strong 4.1 per cent gain in the US and a 2.8 per cent increase in the Asia-Pacific region.

This trend mirrored the "gradual, multi-speed recovery" of the global economy, CBRE pointed out, and this is set to continue, resulting in strong hiring and lower office vacancies across most markets in the near term.

"In this environment, we expect occupancy costs to continue rising from current levels, further limiting options for occupiers," said Richard Barkham, global chief economist at CBRE. "Technology, quality and flexibility are expected to increasingly come into consideration in space use and location decisions, as occupiers will seek to contain costs and improve productivity."

In the EMEA region, however, concerns over the strength of the eurozone's recovery have capped occupier activity, with prime office occupancy costs in Q3 2014 edging up only 0.3 per cent year-on-year, despite strong gains in Ireland's Dublin and in UK cities.

London's West End - an area of Central London housing the city's major tourist attractions, shops, businesses, government buildings and entertainment venues - remained the most expensive office market worldwide. The City of London - bordered by Liverpool Street, Tower Hill, Blackfriars and Barbican Tube stations - was ranked eighth.

Hong Kong's Central District, the second priciest office market, saw occupancy costs in the third quarter of 2014 climb 7 per cent to US$250.61 psf per annum.

With the exception of Shanghai Pudong, which nudged Paris off the top 10 list of most expensive office markets, prime office occupancy costs in China were generally stable over the past year, CBRE observed. Occupancy costs in Shanghai Pudong grew 7 per cent year-on-year to US$127.89 psf per annum in Q3 2014; notable demand from domestic financial institutions suggests further rental increases in the near term, CBRE said.