According to Knight Frank’s newly released Global Cities 2015 report, more than 1.1billion people will be living in the world’s biggest cities in the next 15 years, and most of them will be working in offices. That, according to the inaugural report, will send prime office rents to record highs.
As defined by Knight Frank’s report, global cities are the ones that are a must for airline routes, five-star hotel brands and often home to major multinational branches. “Premium pricing for real estate is found in cities with the most high-value knowledge workers, which attract the world’s leading corporations. These are the Global Cities,” the report states. The 15 global studies in Knight Frank’s report are located in Europe and North America and also include six from Asia-Pacific: Hong Kong, Mumbai, Shanghai, Singapore, Sydney and Tokyo (South America, emerging Africa and the Middle East were excluded).
Over the next five years, office rents in San Francisco will experience the biggest jump in rates: a just over 36 percent increase. The highest-ranking Asian city is Singapore in fourth (25 percent), Sydney ranked fifth (22.3 percent), with Mumbai and Tokyo rounding out the top ten (14.9 and 13.4 percent respectively). Despite its relatively middling position, Mumbai had the best office yields as of 2014 (over 10 percent), with Tokyo near the bottom of the list and Hong Kong dead last (2.9 percent). With limited supply of new offices, as of the year end of 2014, Hong Kong is expected to have the lowest vacant office space among the 15 top cities in the world. According to Knight Frank Research, Hong Kong has the lowest prime yields among the 15 top cities in the world as office property prices had surged in previous years.
What those offices look like will in turn influence the needs and physical demands of office property. Technological progress (such as tablet computing and the Cloud) and the IT sector itself are among the key drivers, shaping size, design and location demands, in turn defining prime office space. In 2006 perpetual property investment leader London’s office take-up was dominated by the financial sector at four million square feet. In 2013 the take-up rate for technology, media and telecommunications (TMT) industries exceeded three million square feet, with the traditional financial sector dropping to under two million.
“The 21st century has experienced seismic shifts in the way business is conducted, particularly in the relationship between work and home. This has put the office at the forefront of today’s city economy, and led to its transformation as a place to work,” the report states. Technology combined with dense urban living has put new emphasis on the skyscraper, once the purview of a select few cities and increasingly the only response to a rising demand for core central business district addresses around the world. Notable, however, is that San Francisco office towers have jumped ahead of four Asian cities, moving to fifth place from ninth last spring, largely on the back of the rapid growth of California’s tech sector and the resulting demand in San Francisco.
In addition to what will likely be increased investment value in 
commercial space, residential markets are going to feel the trickle down benefits of the booming office market and the trend to urbanisation. Knight Frank’s prime residential forecast for moderate to strong price growth includes five of the six Asia-Pacific global cities, in addition to Bangkok, Delhi, Beijing, Bangalore, and Jakarta. The full Knight Frank report can be downloaded at www.knightfrank.com/globalcities.