By Roznah Abdul Jabbar
Offices in three main cities in Asia – Hong Kong, Singapore and Tokyo top the chart as the most expensive, according to Knight Frank Asia Pacific’s Global Capital Markets Q1 2015 report.
Of the three, Hong Kong is the most expensive, priced more than twice the rate of prime commercial properties in the 31 other global cities tracked.
Knight Frank analyses capital values for prime offices in 32 cities, which shows that prime Hong Kong office space is valued at US$6,503psf (RM23,310psf). This is about 2.5 times more than second-placed Singapore at US$2,632psf (RM9,431psf) and more than three times those in the city of London.
According to Darren Yates, the head of Global Capital Markets Research at Knight Frank, the scarcity of land and land values are the fundamental issues that are driving rents and capital values, particularly in Hong Kong and Singapore.
“These locations have a very constrained supply of land, combined with high population densities and an abundance of successful global companies with abilities to pay higher rents,” he said.
Despite strong recent growth in capital values and an uneven global recovery, Knight Frank is forecasting further growth in cross-border investments in 2015, as investors seek better returns and diversification outside home markets.
Based on Knight Frank’s forecasts, global investment volumes for commercial property will rise by at least 10% to over US$700 billion (RM2.5 trillion) in 2015, given the significant weight of capital targeting real estate. Finalised data for 2014 is expected to show that global investment volumes for commercial property exceed US$600 billion (RM2.6 trillion), around 15% up on 2013.
The report said that for this year, tenant demand for offices is expected to improve and falling availability will lead to rental growth.
Yates said that the real estate capital markets have been increasingly buoyant and disconnected from occupational trends, which in turn have mirrored the unevenness of the global recovery.
“Investor focus thus far has been on transparency and liquidity, which has played well to the gateway cities such as London, Paris and New York,” he said.
However, Yates added that demand is also increasing for second- and third-tier cities, where competition for stock is less intense and potential returns are higher.
Knight Frank’s Head of Research for Asia-Pacific Nicholas Holt said that within the Asia-Pacific region, increase in investment volumes is expected this year.
“Japan and Australia will very much lead the way, followed by China, Korea, Hong Kong and Singapore. With pricing extremely high for prime assets in many of the markets, there could be a renewed focus on more secondary locations and value-added opportunities,” he said.