Hong Kong will retain its title as the world’s most expensive office market despite rents being forecast to decrease in 2019, according to Knight Frank’s latest Global Outlook Report. Knight Frank's chief economist believes that there is a compelling global case for continued rental growth across the global cities.
Melbourne and Sydney will see the largest rental growth in 2019 with rents rising 10.1% and 8.6%, respectively. Both are experiencing tight supply in their office markets due to employment growth and relatively low levels of development completions in recent years. Prime rents have been rising rapidly in both markets, up by 13% in Sydney and 6% in Melbourne over the past year.
The Global Outlook Report found that while all cities are feeling the impact of slower economic growth and geopolitical risks, some are benefiting from robust demand from tech firms for business space. This is coinciding with fewer major developments reaching completion, as the uncertain political environment has deterred some developers from building in recent years. This is squeezing supply and pushing up rents.
William Beardmore-Gray, Head of Occupier Services and Commercial Agency, Knight Frank commented: “Occupiers face two contradictory pressures in 2019. The geopolitical threats, like Brexit and the US/China trade war, make it difficult for firms to plan the future. However, business pressures to expand market share, recruit talent and enter new markets, are pushing them to address their property needs. Limited supply of new offices, following years of under development, mean that many occupiers will feel compelled to enter the market in 2019, and acquire space before someone else takes their preferred option for a future headquarters building.”
When analysing the Budapest market, Erika Loska, Head of Office Division Knight Frank, added that “the Budapest office sector experienced a strong performance in 2018, reflected by take-up of over 530,000 sqm, which came very close to topping the record-breaking year of 2015. The Vaci Corridor continues to be the most sought after submarket in 2018 as well. Vacancy rate stands at 7.3%, a slight decrease from the previous year, yet still represents a new record low. Rents have shown a steady increase, even though the supply of Class A offices has been generous in 2018. With the vacancy rate still registering low rates the market continues to be landlord favourable. Prime headline rents were reported at around €24/sqm/month”.
James Roberts, Chief Economist, Knight Frank commented: “We believe there is a compelling global case for continued rental growth across the global cities. Tight development pipelines over several years have created leasing supply crunches, particularly for offices and logistics property. This is coinciding with stronger occupier demand, particularly from the fast-growing tech sector. We expect these improving expectations on rental growth to give more investors the confidence to make leveraged buys particularly given the supply problems found across global occupier markets.”