Rental costs in London offices are going up even faster than new skyscrapers, according to a major new report from real estate consultancy Knight Frank.
The cost of renting an office went up by around 11% in the first six months of 2015, more than any other major city in the same period.
Every year, Knight Frank surveys some of the world’s biggest and most important cities, including the likes of Singapore, Beijing, Washington DC, and Mumbai, to find out where office space is the most expensive.
London is now the third most expensive city on earth to have an office in, with only Hong Kong and New York costing businesses more in rent. London’s market for office space is booming thanks to very high demand in the capital, where office vacancies are now at their lowest since 2001, according to the report.
Knight Frank puts the booming price of London office space down to the city being viewed as an ideal city to do business in. James Roberts, Knight Frank’s chief economist said that “firms in London have put the global financial crisis far behind them, are planning for the future, and expanding their offices.
There is a willingness to pay more to get exclusive accommodation, and this has resulted in greater demand for skyscraper space… A range of companies — from private-equity firms to oil companies and insurers — view London as the business location to expand their operations.”
Demand for office space in London is fuelling a big building boom. In the past few years, skyscrapers like the Cheesegrater and Walkie Talkie have gone up in the City of London, with many more planned. Since 2000, more than 70 million square feet of office space has been created in London, more space than in the entirety of Singapore.
In London, the biggest growth in prices was in NoHo, a development in Fitzrovia, and in Shoreditch, home to many of the UK’s burgeoning tech companies thanks to its proximity to Old Street’s TechCity roundabout.
After London, the city which saw most growth in office prices so far this year is San Francisco. Work spaces there are now about 8% more expensive than they were at the start of the year. The Californian city and its surrounding area is home to huge tech businesses like Google and Apple, and a growing start-up scene is pushing prices in the Bay City upwards strongly. Knight Frank’s report points out that 41 of the Fortune’s “unicorns” are based in the Bay Area of California.
Sky high prices in Hong Kong
Prices in London may be soaring, but Chinese financial centre Hong Kong is still much more expensive than anywhere else in the world. If you thought that London property costing $US122 per square foot per year was a lot, then check out the price in Hong Kong. $US255.50!
In comparison, in Singapore, Asia’s other major financial centre, renting an office costs just $US93.25 per square foot. Prices in Hong Kong are nearly a third more expensive than in New York, its closest rival for the title of world’s most expensive city for business.
Hong Kong rents are so high because of the huge lack of space in the city, one of the most crowded major cities on earth. Knight Frank says that this is making businesses think about having offices in the centre of Hong Kong, and there is a developing trend of decentralization in the city. More companies are moving out of the centre of Hong Kong and into offices near the city, Knight Frank found.
“Limited office availability in the CBD, also known as Central, means it is becoming increasingly difficult to fulfil multinational companies’ rising demand for business space,” said Pamela Tsui, a senior manager for Knight Frank in China.
As well as having the world’s most expensive city for office rentals, Asia is also home to three of the five cities expected to see the highest rates of price growth in the coming years. Offices in major Indian cities like Mumbai and Bangalore are going to do particularly well in the next few years, the report says.