The gap is widening between the world’s two priciest office markets as London suffers from Brexit uncertainty and a decline in the value of the pound sterling. Hong Kong is firmly entrenched atop JLL’s global premium office rent rankings with key occupancy costs pegged at USD $302 per square foot, more than 50 per cent higher than the next highest rate of USD $197 in London’s West End.
Midtown New York, Beijing and Tokyo round out the top quintile for the bundle of costs that include net effective rents, service charges and property tax. Meanwhile, Toronto ranks 30th, offering some of the most competitively priced office space in the 2016 overview of 35 major global cities.
“While only a fraction of a city’s corporate base will pay such premium rents, the tracker benchmarks office occupation costs on a like-for-like basis,” JLL’s recently released report notes. “It provides a useful barometer of relative city attraction and highlights the intense strains that many cities face as their real estate markets try to accommodate growth.”
Hong Kong, Beijing and Tokyo all register vacancy rates below 2 per cent for this premium stock, whereas vacancies in New York’s midtown district are closer to 9 per cent. London’s west end boasts a tighter 4 per cent vacancy rate, but relative occupancy costs have dipped by 15 to 20 per cent since 2015 due to depreciation of the UK pound sterling and what JLL terms “a modest reduction in net effective rents”. In contrast, premium rents in New York are up about 10 per cent and JLL analysts predict “a further uplift is in prospect during 2017.”
The report also points to a shifting tenant base among trends to watch. “Traditionally, premium office space has been the domain of high-value, high-margin businesses in financial services (e.g. private banking, corporate and investment banking), professional services (e.g. legal, management consulting) and high-end fashion/luxury goods. More recently, a greater number of tenants from the technology sector are targeting premium buildings to attract top talent and enhance their brand equity,” it advises.
Toronto is characterized as a New World City along with San Francisco and Sydney, which are positioned eighth and 23rd in the premium office space rankings. Interestingly, Toronto’s net effective rents appear to be the lowest of all surveyed markets, but additional costs bump it above Sao Paulo, Mexico City, Houston, Amsterdam and Brussels.
