Office Rental Premium Between Singapore and Hong Kong Narrowed Markedly Over Last Five Years to 108% in 2020
Positioning of both cities as regional hubs driven by target business geographies
"When we compared the office rental premiums between the two cities in 2015 and looked at which city had a more competitive edge as a choice of regional headquarters location, the rental gap was at 135% in favour of Singapore. Five years later, this gap has narrowed to 108%, which creates a positive opportunity for Hong Kong as it becomes more competitive," said Keith Chan, Head of Research, Hong Kong, Cushman & Wakefield.
"As the two cities continue to attract investors and occupiers, we are seeing a more defined role whereby companies looking for more exposure to China will prefer to have Hong Kong as its regional base while Singapore is a better location for companies looking to grow and capitalize on the emerging South East Asian markets. For example, China's tech companies including Tencent, Alibaba and ByteDance have set up base in Singapore to tap into the opportunities within SEA," noted Wong Xian Yang, Head of Research, Singapore, Cushman & Wakefield.
"In Hong Kong, small to medium-sized occupiers in the finance sector such as private equity funds, hedge funds, asset managers, wealth management and crypto currency service providers are expanding their presence to leverage the city's position as the gateway to Chinese capital," continued Keith Chan, Head of Research, Hong Kong, Cushman & Wakefield.
Below is a snapshot of the office rental performance of both markets between 2015-2020:
- The rental premium between Hong Kong and Singapore Grade A CBD office rents widened rapidly in 2015 to reach 135% from 71% in 2014 as Hong Kong rents went on an uptrend due to tight supply conditions and strong demand from corporate occupiers especially from Chinese financial firms looking for prime multi-floor space in the CBD.
- On the other hand, Singapore office rents fell in 2015 as the office market was hit by a double whammy of weak global economic growth and a supply glut.
- The gap in rents continued to widen to reach a peak of 173% in 2017, at which point the Singapore market started to recover, driven by a recovering global economy and demand from co-working operators and tech companies.
- The gap then narrowed in 2018, as Singapore market rents rose by 15.3% y-o-y amidst tight vacancies and strong demand while Hong Kong rents rose by a lesser 4.9% y-o-y in USD terms.
- As business sentiment in Hong Kong weakened amidst the protests in the latter half of 2019, the rental gap continued to close over this time period and was further exacerbated by the pandemic which further drove rents down in both cities. As of end 2020, we saw a 108% difference between Singapore and Hong Kong.
Despite the ongoing pandemic, the Singapore office market is showing signs of recovery with rental growth turning positive in 2Q 2021. This is fueled by a flight to quality with demand for quality office space driven by technology and investment management companies as they leverage the lower rents to secure spaces in trophy buildings. Also, Singapore's GDP growth is expected to bounce back in 2021 and business confidence remains firm given Singapore's relatively strong pandemic track record in the region. Furthermore, new office supply has seen strong pre-commitment rates and the pandemic situation has led to delays in building completions fueling a tight supply situation in the Grade A office market. Nonetheless, the recovery in office rents is expected to be mild over the next few years on the back of lower structural demand for office space due to remote working.
However, the expected increase in Singapore office rents reflects the city's increasing importance as a hub for stability in an uncertain operating environment and the increased significance of the ASEAN market to corporate occupiers. With the successful roll-out of its vaccination programme coupled with a progressive economic recovery plan, the country has maintained its reputation as a safe and stable investment destination and regional business hub.
Hong Kong rents are still expected to downtrend till 2023, closing the rental gap between cities. The city's Grade A new office supply adds up to circa. 5 million sf from now to 2023 and when combined with the sizable stock already available in the market will put pressure on the city's rentals. Landlords in the CBD are more willing to offer competitive incentives in order to retain existing tenants, or to lure potential tenants relocating from other submarkets.
An ongoing rental adjustment will continue to take place until a significant portion of new stock is being absorbed by the market, which will take about 2 to 3 years. These market changes present office tenants with an excellent opportunity to upgrade their office space and as the market stabilizes and reinvigorates itself, Hong Kong will be well-positioned to capitalize on the expected surge in activity when cross-border travel resumes.
From an office occupier perspective, conversations around business and operational strategies as they relate to location and space requirements will continue to gain momentum amidst the evolving pandemic situation and changes in regulatory framework and policies. It is more important now than ever before for corporate occupiers to be aware of the variability in rental trajectories and proactively strategise to capitalise on expected rental declines or minimise rental increases. They should align their real estate strategy to corporate enterprise goals, especially when considering alternative locations. They should also calculate their space requirements accurately through workplace analysis and apply thoughtful design and fit-out standards to help ensure maximum productivity. These strategies will define how they optimise their office space with minimal cost exposures over the course of their lease period, in whichever city they choose to be.
"We believe the outlook for the Hong Kong office market is positive as Hong Kong is in pole position as the regional finance hub in Asia Pacific due to a number of favourable factors such as the ongoing development of the Greater Bay Area, low tax rates, active IPO market and its position as a global offshore RMB centre, providing unparalleled access to Mainland markets," concluded Keith Hemshall, Executive Director & Head of Office Services, Hong Kong, Cushman & Wakefield.
Hong Kong vs Singapore Grade A Office Rents
HK Greater Central
(Grade A) (USD psf pm)
SG Grade A CBD
(USD psf pm)
HK/SG Rental Premium
Source: Cushman & Wakefield
Note: Rents quoted here refer to the total occupancy costs in USD psf pm, which is net effective rents plus service charge, focusing on Greater Central for Hong Kong and the CBD for Singapore.
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