HONG KONG: TOP OF THE TOPS
Hong Kong has once again topped the list of Skyscraper prime office rents, according to Knight Frank’s latest Skyscraper Index. Here, Cityscape takes a closer look at the fortunes of three leading high-rise markets: Hong Kong, New York and Dubai.
Hong Kong remains THE business address when it comes to A-grade office space, according to the latest Skyscraper Index from Knight Frank and Newmark Grubb Knight Frank. The Asian city reported the highest skyscraper office rents at USD 250.5 per sq ft, but legendary high-rise city New York is gaining ground quick, coming in second in the Skyscraper Index at USD 150 per sq ft.
Skyscraper Index ranks the world’s cities as centres for high rise offices and homes.
New York rental values have boomed as skyscraper development has increased, with towers proving popular workplaces for the expanding digital and creative firms in the city, as well as financial and professional firms.
However, Hong Kong’s large lead in rents reflects a low vacancy rate and constrained CBD area.
According to the Skyscraper Index, the resurgence in enthusiasm for skyscrapers is partly one of city status, along with recent changes in how firms perceive offices, particularly in relation to their workers.
In the past, offices were typically viewed as a cost that companies wanted to minimise, with little thought given to how they could boost productivity. Consequently, in the 1970s and 1980s, offices that were out-of-town and low rise, and thus cheaper, were growing in popularity with companies. Skyscrapers, like the city centres they occupied, were viewed as expensive and in decline.
However, firms today increasingly view real estate as a means of controlling a much bigger cost, namely staff retention. This has coincided with a movement of people back into cities, reversing the preceding exodus to the suburbs.
The Skyscraper Index is now in its second year, and Hong Kong has topped the leader board since day one. However, while Asia may be building apace, economic recovery in the U.S. is buoying demand for towers from investors and tenants in the big North American cities.
Interestingly, both Hong Kong and New York are island cities, and this means space is constrained, demand is high, and therefore so are property prices, whether rental or for sale. Skyscrapers are the ideal solution for space constrained CBDs, as they maximise the potential space that can be delivered on a site.
For Hong Kong, while its biggest competition may be New York, growth in neighbouring regions, such as the New Territories of Kowloon Peninsula and south of the Sham Chun River, could also prove competition for the island city, although James Roberts, Chief Economist at Knight Frank, remains doubtful that these areas could command anywhere near the rental rates of Hong Kong.
“I suspect there will always be some snob value in being on the [Hong Kong] island compared to Kowloon. If we take Canary Wharf in London as an example, 25 years since first appearing it still operates at a significant rent discount to the City, and I expect Hong Kong island to retain a similar seniority premium over Kowloon,” he said.
However, according to the Knight Frank report, Skyscraper prime yield spread over 10-year bonds in terms of basis points, places Hong Kong at seventh, with 190 basis points.
The archetypal skyscraper city, New York is once again building, as the U.S. economy continues to rally thanks, in part, to a strong dollar. In 2014, the city added four new towers, including the iconic One World Trade Center.
“As well as the new World Trade Center buildings, we expect large volumes of space to appear in the Far West Side of Manhattan over railway yards for Penn Station. Also, relocations to WTC and Far West Manhattan will free up space in a number of Midtown towers for refurbishment,” commented Roberts.
Currently under development, New York is soon to benefit from the arrival of two new skyscraper clusters, found in Downtown and western Midtown.
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