Asia is the place to be, if you are an office landlord.
Asia is home to seven of the 10 most-expensive cities on the planet in terms of office space, according to a new ranking. Five of those cities are in China, demonstrating how crowded the Middle Kingdom's prime office locations have become amid a shortage of space.
Hong Kong's Central district, the equivalent of Wall Street, has long led the way, and tops this ranking. The total cost of occupancy in the town I now call home is currently $323 per square foot per year, 66% higher than second-placed Midtown Manhattan, at $194 per square foot per year.
London's West End comes next, with Beijing's Finance Street and then Silicon Valley after that. That's according to the Global Premium Office Rent Tracker just released by the commercial real-estate brokerage Jones Lang LaSalle (JLL) .
But then it's all Asia at the top: downtown Delhi, Beijing's central business district, Shenzhen, the Marunouchi ward of Tokyo, Pudong in Shanghai, the Quarry Bay neighborhood on eastern Hong Kong island, and Shinjuku in Tokyo all cost at least $113 per square 12 inches for every 12 months.
In Hong Kong, Quarry Bay is a major beneficiary from the lack of space in Central. Companies such as BNP Paribas (BNPQY) are taking space in the neighborhood, which is being redeveloped by Swire Properties (SWROY) on the site of the former Taikoo dockyard and sugar factory. Though yet to be confirmed, it's likely to be home to the Hong Kong offices of Action Alerts PLUS charity portfolio holding Facebook (FB) when the company moves in.
This is good news, obviously, for the stocks of developers and landlords. In Hong Kong, the primary owner of the office space in Central, pretty much all of which is premium, is Hongkong Land (HNGKY) . Sun Hung Kai Properties (SUHJY) , Sino Land (SNLAY) , Henderson Land (HLDCY) , Cheung Kong Holdings (CHEUY) and New World Development (NDVLY) all own large portfolios here, and are also plays on mainland prospects, where they tend to be expanding.
Other top commercial developers in the region include CapitaLand (CLLDY) , which is 40% owned by Temasek Holdings, the effective sovereign wealth fund of the government of Singapore.
Within China, investors may want to focus on developers such as China Overseas Land (CAOVY) and Soho China HK:0410. The high price of top-notch space is encouraging the proliferation of shared office space, with WeWork this month striking a deal to lease an entire building of 290,000 square feet in central Shanghai, its largest branch in Asia. It's in the China Overseas International Center in Huangpu District - a building developed by China Overseas Land.
Globally, office rents rose 4% over the course of this year. That's despite many of the markets being late in their acceleration phase, by the brokerage's calculations.
Vacancies are typically still very low in the major markets, in the low single digits: for instance, 3% in Tokyo's central business districts and 5% in Hong Kong and London.
Southeast Asia is one of the parts of the world that should prove most-attractive to companies looking to expand internationally. Cities such as Kuala Lumpur, Manila and Bangkok have broad office portfolios and a well-educated labor pool. Those three cities, according to JLL, are the three most-affordable locations for premium office space in the world. Space there costs between $30 and $35 per square foot per year.
You can, in other words, get 10 times the amount of space in the capital of Malaysia, the Philippines or Thailand as you would be able to secure on the same budget in Hong Kong. Then again, I'm sitting here in the financial capital of greater China, and it's that market more than any other that international companies are targeting. There's a two-way stream of demand, too, with Hong Kong the first location outside mainland China that mainland companies use as a base.
But Asia in general is the priciest region for prime office space. In part because there generally is not that much stock in the way of Grade A offices, particularly compared to the domestic and multinational demand, the region has the most-expensive premium space in the world, at an average of $111 per square foot per year.
