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Posted on April 18, 2011
A woman walks along a pedestrian bridge in front of the Bank of China Building, left, towards Citibank Plaza, center, and Cheung Kong Center, right, in Hong Kong. Photographer: Dale de la Rey/Bloomberg
Hong Kong’s prime office rents, the world’s highest, jumped more than a third in 2010 with tenants paying almost double the cost in the City of London, according to Colliers International Research.
Prime office buildings in Hong Kong fetched $2,066.35 per square meter (11 square feet) as of Dec. 31, 2010, compared with $1,523.31 a year ago, Colliers said in its Global Office Real Estate Review. London’s West End was the second-most expensive, costing $1,431.82 a square meter, while the City of London was fifth at $1,073.92 a square meter. Tokyo and Paris were in third and fourth place, at $1,130.21 and $1,099.53 respectively.
All of the top 20 cities tracked by Colliers recorded higher office rents in the second half. Office construction is highest in the Asia-Pacific region, accounting for 42 percent of global building, driven by growth in demand, particularly in China, India, Indonesia and the Philippines, Colliers said.
“Most regions showed further signs that the worst of the global financial crisis had passed and tenants were back in the market with a renewed appetite for office space,” Ross J. Moore, chief economist of Colliers’ U.S. division, wrote in the report. “The outlook for 2011 is for continued growth, but the recent surge in energy prices and the geopolitical tensions in the Middle East and North Africa are reasons for concern.”
Crude oil has jumped 30 percent in the past six months as months of conflict in the Middle East, and ongoing tensions in Libya, raised concerns about a possible shortage.
Derailing the Recovery
Higher oil prices “could derail what appears to be a reasonably strong recovery,” Moore said. “However, because of the usual lags, any future deceleration won’t be apparent until the second half of the year.”
While limited building in the U.S. and a pick-up in leasing activity pulled vacancies down 30 basis points to 16.1 percent as of Dec. 31, existing excess supply in many markets continued to push rents down, Colliers said.
Construction in Europe, Middle East and Africa was down at the end of the year, partly due to big declines in Dubai and Abu Dhabi, which saw their combined development pipeline falling by 25.8 million square feet, according to the report.
Riyadh had the highest vacancy rate, at 40 percent, followed by Dubai at 35 percent. Canada’s Regina had the lowest at 1.3 percent, followed by Rio de Janeiro at 1.6 percent. Hong Kong’s vacancy rate of 3.1 percent is the fifth-lowest among the cities tracked by Colliers.
The biggest shortage of prime office space in Central London since at least 1980 will cause rents to jump in the next two years, with the West End seeing a jump to 100 pounds a square foot, London-based property broker Capita Symonds Ltd. said on April 1.
London recorded the most sales in 2010, at $15.3 billion, followed by Tokyo at $11.7 billion and New York at $8.5 billion.
Office prices rose in the Americas, with yields falling by 131 basis points. In the European region, yields remained little changed, while in the Asia Pacific, property yields climbed 31 basis points, according to the report. A basis point is 0.01 percentage point.
“A more robust global economy combined with improved financial markets is clearly boosting both transaction volume and also pricing,” Moore said. “While access to debt is still a challenge in certain markets, and much uncertainty remains as to the sustainability of the economic expansion, real estate markets around the world appear to be shaking off the difficulties created by the global financial crisis and are once again on the buy list of investors.”
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