Prime office space in global cities becoming too expensive
Private real estate investors driving up commercial office property values in so called safe haven markets such as Hong Kong, Paris and London, a new analysis shows.
It means that investors may need to look to less pricey markets with $100 million now buying less than a single office floor in Hong Kong, according to the global cities report from international real estate firm Knight Frank.
The analysis examines how much prime office space can be acquired for $100 million as a guide for private buyers, who accounted for 25 per cent of commercial real estate transactions in 2016 globally.
Hong Kong is by some margin the world’s most expensive city, where buyers could expect to acquire just 11,698 square feet, followed by Tokyo, where $100 million would buy 31,282 square feet.
The top five of the ranking is completed by three European cities, with investors able to acquire 36,662 square feet for this amount of investment in Paris, 43,754 square feet in Zurich and 43,899 square feet in London.
The report published by Propertywire points out that appetite for commercial real estate in many European cities has driven up values, meaning private investors can now expect to acquire far less prime office space for their money.
In Berlin, $100 million would currently buy 85,170 square feet which represents a 42% decrease year on year, while buyers in Amsterdam can acquire 40% less office space this year at 96,762 square feet compared with 2016.
With the exception of New York, which is ranked seventh on the list, US cities appear to offer far better value for real estate buyers. In Los Angeles investors would acquire 131,857 square feet of prime office space for $100 million, closely followed by Boston at 134,977 square feet and Washington DC 135,602 square feet.
In Seattle investors could buy 157,381 square feet, over 100,000 square feet more office space than they could acquire New York whilst Austin and Chicago are even more reasonable offering 172,158 square feet and 204,604 square feet respectively.
According to Knight Frank’s analysis, Bengaluru offers the best value for investors. There, $100 million would buy over 500,000 square feet, equivalent to the size of The Gherkin in the City of London.
“Our analysis demonstrates that private investors remain focused on the safe haven cities, where they get less bricks and mortar for their money but more long-term security. Given the shift in values we have recorded, this strategy has also been rewarded with some strong performances,’ said Anthony Duggan, head of capital markets research at Knight Frank.
“However, even some of the world’s wealthiest individuals will find pricing in Hong Kong, Tokyo and London less attractive moving forward. As a result, we will see astute buyers selectively moving up the risk curve to less well established, or emerging business centres where the property market dynamics are improving, the yields are higher and, ultimately they can get more for their money,’ he added.
Recently, another report said Skyscrapers in Hong Kong are the most expensive commercial real estate in the world, according to new analysis using rental values and yields.
Pricing for skyscrapers in Hong Kong has reached $8,000 per square foot, over 60 per cent higher than tall buildings in Tokyo at $4,900 per square foot, according to the inaugural active capital report from international real estate advisor Knight Frank.
In third place is Manhattan at $3,700 per square foot, followed by San Francisco at $2,500 per square foot and then the City in London at $2,450 per square foot.
The report points out that Hong Kong developer Henderson Land recently paid $3 billion for an old five storey car park, indicating the frenzied state of Hong Kong’s property market.
The price was a record lump sum for Hong Kong and a record also per square foot and Knight Frank says that the sale sets the world’s most expensive city even further apart from its rivals.
“For the first time we have comparatively analysed the capital value of the world’s skyscrapers, which are seen by many as a bell weather for the commercial property market as a whole,’ said Andrew Sim, head of global capital markets at Knight Frank.
“Pricing is highest in Hong Kong which reflects the world’s highest skyscraper rents, and the lack of available land for future development. Similarly, pricing in major financial centres such as Shanghai, Singapore, Manhattan and London is supported by the high level of demand for space in these buildings from financial services businesses, in particular,’ he explained.
“However, pricing for tall buildings in Sydney, Melbourne and Taipei is likely to move more rapidly in the next two years, and we expect to see investors in search of trophy assets looking beyond the major financial centres,”he added.
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