- Australian cities to lead regionally whilst Singapore to continue to see correction: Prime Office Rental Growth Forecasts
- Asia-Pacific cities experienced highest rental growth; Hong Kong skyscrapers the world’s most expensive: Skyscrapers Index
- Hong Kong, Tokyo & Singapore – amongst the top 5 most expensive cities to own prime office space
Knight Frank, the independent global property consultancy, launches Global Cities: The 2017 Report, examining the market performance of 31 global cities across the world in light of three major trends shaping the times:
- Negative interest rates have reduced investors’ expectations on what constitutes an acceptable return, which is drawing capital towards real estate.
- Despite the volatile economic environment, the avalanche of technological innovation continues to drive demand for property on a global scale.
- Fast-growing cities are centre stage in the digital and creative revolutions, and in many of those at the forefront, supply is not keeping pace with demand for both commercial and residential real estate.
Mr. Marcus Burtenshaw, Executive Director, Head of Commercial Agency, Knight Frank Thailand, says “Bangkok may have missed out on the dotcom boom of the early 2000’s but the pivot towards the new digital economy has already begun. This is evidenced by the rise of automation and shift towards industry 4.0 in the manufacturing sector. Meanwhile venture capital is increasingly flowing to entrepreneurs in a whole host of creative services using Bangkok’s relatively low cost base to start up new e-commerce platforms and online marketplaces, e-logistics services, e-payment systems, fintech, and even gaming where talented Thai software developers are winning global competitions like Microsoft’s Imagine Cup. This is supporting the emergence of new commercial real estate types such as collaborative workspaces, where firms like Hubba and Glowfish are incubating new demand for traditional and serviced offices as these firms mature and grow.”
Prime office rental forecasts
Of the global cities analysed, 12 are in Asia-Pacific – a region continuing to grow in economic importance globally. The prime office rents forecast from Q4 2015 to Q4 2019 however show a huge range of future performance prospects:
- Asia-Pacific markets show a huge range of growth prospects, with Sydney projected to see the strongest growth of 27.5% and Singapore the weakest with a forecast rental decline of 14.0%.
- Kuala Lumpur and Beijing are also expected to experience negative growth at -1.1% and -4.4% respectively.
- Shanghai (19.2%), the only Chinese city on the top 10 chart, sits in the sixth position, a notch down from Melbourne (19.3%).
Nicholas Holt, Head of Research, Asia Pacific, Knight Frank Asia Pacific, says, “Our prime office rental forecasts stretching to the end of 2019 offer an insight into how demand drivers will interact with supply dynamics over the coming cycle.
“Sydney, along with Melbourne, continues to see diversified demand drivers, as the Australian economy continues to show resilience despite the slowdown in demand for commodities; while Shanghai has boomed on the back of strong growth from technology related companies.
“In many ways the weakest projections come down to supply, with Kuala Lumpur, Beijing and Singapore markets all seeing a significant amount of new supply come to the market that new demand is being challenged to absorb.”
Prime office rents forecast (Q4 2015 to Q4 2019)
Source: Knight Frank Research, Newmark Grubb Knight Frank Research, Sumitomo Mitsui Trust Research Institute
Capital flows
Neil Brookes, Head of Capital Markets, Asia Pacific, Knight Frank Asia Pacific, explains, “The lower-for-longer interest rate environment around the world continues to accentuate the attractiveness of prime real estate in the world’s leading business hubs. It is the dynamic cities attracting new sources of growth, including the wave of creative and technology industries that continue to be high on long-term investor’s wish lists.”
Source: Global Cities: The 2017 Report, Page 47
Brookes continues, “Globally, New York and London remain the largest markets for overseas capital by some way, the success of these financial giants in attracting institutional capital from around the world is down to the huge liquidity and their strong occupier fundamentals. In the UK’s capital, despite near term jitters following Brexit, pricing looks to be relatively unchanged and we expect it to continue to be one of the key global markets. In Asia, Shanghai saw the largest amount of foreign capital invested in the last 12 months, and as the market continues to mature, this is offering buyers attractive growth prospects in China’s financial capital.”
Capital values
Three of the five costliest cities globally are in Asia-Pacific, with Hong Kong boasting the highest capital values for prime central office space, followed by Tokyo in second place and Singapore in fifth.
Brookes comments, “The analysis shows good value in major US cities when compared to their Asian and European counterparts. Even in the more expensive, supply constrained cities of New York and San Francisco, the differential in price per square foot versus Hong Kong and Tokyo looks attractive considering solid US economic prospects over coming years.
“With significant caution still prevailing around some secondary markets, investors are generally focussed on liquidity, stability and security of income. For this reason, we expect the global gateway cities to remain as key investment destinations over the coming 12 months.”
How much prime office space will US$100 million buy? *
* Based on Q2 2016 prime capital values, 30th June 2016 exchange rates
Source: Knight Frank Research, Newmark Grubb Knight Frank Research, Sumitomo Mitsui Trust Research Institute
Skyscraper Index
The Skyscraper Index examines the rental performance of commercial buildings over 30 storeys.
Looking at the performance of skyscrapers in the six months to Q2 2016:
- Asia-Pacific cities experienced the highest rental growth across the 23 global cities tracked.
- Skyscrapers in Shanghai recorded the strongest rental growth in the first half of 2016, at 7.6%, followed by Sydney (6.5%), Hong Kong (5.9%) and Taipei (5.7%).
- Singapore sits at the bottom of the chart with a decline of 7% attributed to significant new supply and a slowdown in the local economy.
- Hong Kong remains the most expensive city to rent a prime office space, at US$278.50 per sq ft. This is significantly higher the runner-up New York (Manhattan) where rents have reached US$158 per sq ft.
Skyscraper Index – % rental growth in six months to Q2 2016 for upper floors in skyscrapers
Skyscraper Index – Prime office rents for upper floors in skyscrapers
* Excludes exchange rate effects; conversion to US$ based on 30 June 2016 rates
Holt comments, “At the mid-point of the 2016, the global skyscraper story really has an Asia-Pacific flavour, with the top four performing cities in terms of rental growth situated in this region.
“Home to the largest cluster of super tall buildings in mainland China and the tallest skyscraper in the region (Shanghai Tower) – Shanghai’s skyscrapers saw the strongest rental growth rates over the first six months of the year. Tight vacancy rates in the city’s Lujiazui district are likely to further encourage rental growth over the coming months.
“In terms of actual rental levels, Hong Kong’s skyscrapers remain the highest in the world, and with demand likely to outstrip supply for the foreseeable future in the city’s central business district Central, we expect the city to retain its top position in the Index.”
Download below link for Global cities 2017 full report
http://www.knightfrank.com/globalcities
