Amid robust global demand for Commercial Office space, Hong Kong leapt to the top of the world’s most expensive property markets in 2006 according to Colliers International’s Global Office Real Estate Review 2007.  With a 5% GDP growth rate, Hong Kong set the worldwide benchmark leasing rate with the world’s most expensive Class A office space at USD $275/s.f. (178.75 HKD/sq. ft./month – which is based on total occupational charges, including occupational charges such as management fees, government rents and rates.), a 19.56% increase from the next highest market, London. 

This figure makes Hong Kong 34.8% more expensive than Tokyo, 57.1% higher than Mid-town Manhattan, and a 455% premium from Rio de Janeiro’s highest rent.  Averaging all Class A office leasing transactions however puts Hong Kong third globally ($144.34 USD), behind London’s West End ($177.33 USD), and London City ($149.79USD).

Of the large global markets cited by the Review, Hong Kong has the world’s second most rapidly declining vacancy rate, a percentage measure of total unoccupied completed floor space.  Over a three-year span, since 2003, commercial vacancy has fallen from a high of 15.6% to a new low of 3.8%.  Comparatively, Shanghai’s rate dropped from 14.7% to 3.8% and the United States declined slightly (15.1% to 12.6%) along with Europe (9.5% to 7.9%).

Cited also by the Review is the amount of commercial office space per capita in Hong Kong, a measure of the total amount of office square footage to total regional population, which puts the low vacancy rates into ever greater perspective with regards to our Chinese counterparts.  With 6.9 million residents, Hong Kong has almost 52 Million sq. ft. of space, while Beijing, home to almost 200% more inhabitants has only 40 million feet and Shanghai, with almost 18 million residents, has only 36 million feet.  Guangzhou has similar demographics to Hong Kong but one-tenth of the office space.  This indicator further illustrates the mature nature of the capacity of the Hong Kong office market and the robust demand inherent in the leasing environment.  Additionally, the smaller figures in the otherwise strong Mainland markets are a significant indicator of their appetites and ability to construct more space.

Considering the rapid space consumption and high rents, investor confidence is strong with respect to the prospects of our Commercial market.  Reflected by a capitalization rate of 3.6%, the lowest of any market in Colliers’ study, investors are signaling a positive outlook with regards to expectations for long term real estate asset appreciation.  Furthermore, this indicator signals a perceived declining risk premium with regards to property development and ownership within the market.

Levels of new office construction ranked Hong Kong 12th in the global study with 8.89 million new square feet in the pipeline, behind Global leaders Moscow, Shanghai, and Dubai but one spot ahead of Tokyo’s Central Wards. In Hong Kong, trending growth towards decentralizing the prime office market away from Central is expected to continue to fuel this growth, and could also serve to moderate currently rock-bottom vacancy rates.