Is Hong Kong pricing itself out of the market?

Cushman & Wakefield, the world’s largest privately owned real estate service firm has released a research report that questions if Hong Kong is pricing itself out of the market. The report states that Hong Kong’s Central Business District has been ranked as the world’s most expensive office market in 2010, due to strong demand and limited new supply. The average rent of the Prime Office Buildings in Central has climbed over % from 2009 to $20.04 (HK$155.90)* per square foot per month. In 2011, sustained economic growth and a shortage of new supply  fuelling more competition for office space and a steep uptrend in rental costs.

Recognizing the rapidly growing prices and lack of supply, The Hong Kong SAR Government has recently announced significant measures to provide more supply for Grade A office space in Hong Kong in an attempt to keep prices reasonable and maintain the city’s competitiveness with other regional financial centres.

Nevertheless, many investors are turning to other central business districts throughout Asia, including Singapore to invest in.  Last month, Cushman & Wakefield represented the vendor and sold one of  Singapore CBD’s prime office and retail landmarks, Capital Square, for US$715 million (HK$5.563 billion) – the highest price achieved for a sale of a single property in Asia Pacific (excluding Japan) this year.

Purchased by a joint venture between Alpha Investment Partners and NTUC Income, Capital Square achieved an average price per sq ft of approximately US$1,843 (HK$14,339), a record price for Singapore’s CBD office market in 2011. Capital Square is in fact the 2nd largest broker-led sale globally this year  and  the highest capital value per square foot of building achieved globally this year for an A grade building. This record sale in Asia reflects the growing demand in commercial property from investors for Asia.

Looking at Hong Kong, with the limited supply in prime commercial space, many global enterprises and investors are also looking at Grade B offices with rents expected to rise even higher this year. The average rent for Prime Office Buildings per square foot per month in Hong Kong’s CBD has reached around US$19.15 (HK$149)* per sq ft per month in the first quarter of this year while similar locations in Singapore and Shanghai are averaging one third of that price, at around US$ 6.30 (HK$49)  per sq ft per month.

John Stinson, Managing Director, Capital Markets, Asia Pacific, Cushman & Wakefield says “There is growing demand for top-tier office buildings within Asia, especially in Singapore and Hong Kong, regions that have become prominent destinations for global institutions. Rental growth in in Hong Kong’s CBD Grade A office space is expected to rise by another 20 – 25% this year”.

With very limited new supply, Hong Kong is set to have the steepest increase in office rents over the next two years while other regional locations are expected to catch up in 2012.

* Rent is inclusive of Management Fee & Government Rates