• Knight Frank Launches Global Cities 2017 Report

    28 September 2016

    (15 September 2016, Hong Kong) Knight Frank, a leading international property consultancy, has launched its Global Cities: The 2017 Report. The report examines the market performance of 31 global cities across the world in light of three major trends sharing the times.

     

    Highlights: 

    • In Q2 2016, Hong Kong retains the title of the most expensive place in the world to rent office space in a tower building. Hong Kong will likely retain the highest prime office rents for the next 3–5 years.
    • Hong Kong, Tokyo & Singapore – amongst the top 5 most expensive cities to own prime office space.
    • Hong Kong has the lowest Grade-A office stock among major financial centres.
    • Chinese companies are still the main driver of the Hong Kong office market. In 2016, investment by Chinese firms account for over 60% of total office transactions.
    • Hong Kong is increasingly being used as the first stop for Chinese outbound capital and a springboard to world markets.
    • In Hong Kong, total prime office stock in Kowloon East is forecasted to surpass Central’s around 2020.
    • From Q4 2015 to Q2 2016, Shanghai showed the highest office rental growth over the period at 7.6%. Hong Kong ranked 3rd with 5.9% rental growth.
    • In Q2 2016, Hong Kong recorded the second lowest prime yields (3.0%) among the world’s global cities.

     

    Global commercial real estate trends

    The report identifies three key global trends that will affect the real estate market and global city competitiveness.

    •  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.

     

    Prime office rental forecasts

    Of the global cities analysed, 12 are in the Asia-Pacific – a region continuing to grow in economic importance globally. However, the prime office rents forecast from Q4 2015 to Q4 2019 show a huge range of future performance prospects:

    • Asia-Pacific markets show a huge range of prime rent growth prospects. Sydney is projected to see the strongest growth at 27.5%. Singapore is forecasted to experience the strongest decline in the region at -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%).

     

    David Ji, Director and Head of Research of Greater China at Knight Frank, says “to hedge against the risk of further rental rises, many mainland companies are looking to purchase offices for their own use, including setting up regional headquarters.”

     

    The Skyscraper Index

    Global Cities 2017 Report page 12-13

     

    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 global cities tracked.
    • Skyscrapers in Shanghai recorded the strongest rental growth in the first half of 2016, at 7.6%, followed by Sydney (6.6%), Hong Kong (5.9%) and Taipei (5.7%).
    • Singapore sits at the bottom of the chart with a decline of -7.0% 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 per annum. This is significantly higher the runner-up New York (Manhattan) where rents have reached US$158 per sq ft per annum.

     

    David Ji says “as 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.”

     

    Hong Kong office market performance and trends

    Grade-A office performance, rents and supply 

    • According to Knight Frank’s Skyscraper Index, Hong Kong’s US$278.50 per sq ft per annum office rental makes its prime office rents the highest in the world by a significant margin. Thomas Lam, Senior Director, Head of Valuation & Consultancy, Knight Frank, expects Hong Kong to retain the highest prime office rents for the foreseeable future (3–5 years) due to the large gap with other cities and consistent demand.
    • Hong Kong has the lowest Grade-A office stock among major financial centres (including Singapore, Sydney, London and Manhattan).
    • The trend of increasing prime office rents looks likely to continue. Knight Frank Research forecasts an increase between 2% to 5% over 2017.
    • Within Hong Kong, Central has the highest Grade-A office rents in Hong Kong due to continued supply shortage. Central office rents have surged by 20% over the past two years.
    • Knight Frank Research shows that Hong Kong is likely to face a shortage of office space of around 2 million sq ft (equivalent to an office tower of a comparable size to Two IFC) by 2020.
    • Hong Kong, Tokyo & Singapore – amongst the top 5 most expensive cities to own prime office space.

     

    Mainland Chinese firms are the key demand driver

    Global Cities 2017 Report page 38–39

    There has been a significant upward trend in mainland firms making en-bloc office purchases in Hong Kong over the past few years despite the city’s low yields and high entry costs. This occurs amid rising prices and yield compression in major gateway cities. Going forward, Mainland Chinese firms entering Hong Kong will be the key demand driver.

    • In the first six months of 2016, US$2.9 billion (equivalent to HK$22.4 billion, 64% of total office investment sales transaction value) worth of offices have been snapped up by mainland companies.
    • Hong Kong is increasingly being used as the first stop for Chinese outbound capital and a springboard to world markets. This will be enhanced by factors like the implementation of Shenzhen-Hong Kong Stock Connect, the establishment of Asia Infrastructure Investment Bank and the Belt and Road Initiative. 

     

    The future of Hong Kong’s decentralised office clusters 

    • There are four main upcoming decentralised office clusters with growing supply: Kowloon East (CBD2), Kwai Chung, Shek Mun and Wong Chuk Hang.
    • The trend of decreasing decentralised Grade-A office rents looks likely to continue. Knight Frank Research forecasts a decrease of between -1% to -2% over the second half of 2016.
    • Knight Frank Research forecasts total Grade-A office stock in Kowloon Eastto surpass Central’s in around 2020.

     

    Under the Energising Kowloon East Initiative, the Hong Kong Government plans to create a “Smart City” in Kowloon East with information and communication technology (ICT) and Internet of Things (IoT) solutions, better mobility and low-carbon planning. This is expected to attract more firms to relocate or enter the area along with its maturity as CBD2.

    Global Cities 2017_left to right_David Ji_Thomas Lam

     

    Databank: 

    Table 1: Knight Frank Skyscraper Index

    Global Cities 2017 Report page 12-13 

    Ranking Global City  Prime rent (per sq ft per year)  Six months growth*
    1 Hong Kong US$278.50 5.9%
    2 New York (Manhattan) US $158.00 1.9%
    3 Tokyo US $149.50 0.0%
    4 London (City) US $114.00 0.0%
    5 San Francisco US $113.00 2.7%
    6 Sydney US $90.75 6.6%
    7 Boston US $77.00 0.0%
    8 Singapore US $72.00 -7.0%
    9 Shanghai US $72.00 7.6%
    10 Beijing US $63.00 3.3%
    11 Chicago US $59.00 0.0%
    12 Paris (La Défense) $56.50 0.0%
    13 Mumbai $53.00 4.7%
    14 Miami $53.00 2.0%
    15 Frankfurt $52.50 0.0%
    16 Toronto $49.00 4.9%
    17 Melbourne $47.00 3.0%
    18 Los Angeles $46.00 2.2%
    19 Mexico City $44.59 0.6%
    20 Dubai $43.50 0.0%
    21 Taipei $38.50 5.7%
    22 Seoul $32.50 0.2%
    23 Madrid $28.50 0.0%

    Source: Knight Frank Research, Newmark Grubb Knight Frank, Sumitomo Mitsui Trust Research Institute.

    *Q4 2015 to Q2 2016

     

    Table 2 – Prime office rents forecast (Q4 2015 to Q4 2019)

     

    Ranking Global City % Growth
    1 Sydney 27.5
    2 Berlin 25.0
    3 Austin 24.9
    4 Madrid 21.0
    5 Melbourne 19.3
    6 Shanghai 19.2
    7 Seattle 17.0
    8 Los Angeles 15.9
    9 Dublin 15.5
    10 Boston 11.1
    11 Mumbai 11.1
    12 Tokyo 10.3
    13 Paris 10.0
    14 Bangkok 8.3
    15 London 7.1
    16 Amsterdam 6.8
    17 Miami 6.0
    18 San Francisco 5.1
    19 Washington, DC 5.0
    20 Hong Kong 4.5
    21 Seoul 4.3
    22 Frankfurt 3.9
    23 Chicago 2.9
    24 Brisbane 2.7
    25 Mexico City 0.6
    26 Toronto -0.1
    27 Kuala Lumpur -1.1
    28 New York City -2.5
    29 Beijing -4.4
    30 Singapore -14.0
    31 Bogota -17.3

    Source: Knight Frank Research, Newmark Grubb Knight Frank Research, Sumitomo Mitsui Trust Research Institute.

     

    Table 3 – How much prime office space will US$100 million buy? *

    * Based on Q2 2016 prime capital values, 30 June 2016 exchange rates


     

    Ranking City sq ft
    1 Hong Kong 13,966
    2 Tokyo 32,694
    3 Paris 41,534
    4 London 45,326
    5 Singapore 50,124
    6 New York City 53,763
    7 Dublin 70,608
    8 Sydney 85,517
    9 Frankfurt 89,347
    10 Beijing 97,782
    11 San Francisco 100,000
    12 Shanghai 111,705
    13 Madrid 114,785
    14 Berlin 121,406
    15 Washington, DC 121,407
    16 Boston 122,347
    17 Miami 127,129
    18 Seattle 129,245
    19 Los Angeles 134,016
    20 Amsterdam 135,690
    21 Melbourne 149,305
    22 Austin 163,119
    23 Toronto 163,636
    24 Brisbane 167,842
    25 Chicago 204,988
    26 Mumbai 212,472
    27 Bangkok 256,637
    28 Mexico City 307,542
    29 Bogota 354,380
    30 Kuala Lumpur 392,758

    Source: Knight Frank Research, Newmark Grubb Knight Frank Research, Sumitomo Mitsui Trust Research Institute

     

     

    To download the report, please visit: http://www.knightfrank.com/globalcities

     

     

     

     

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