Gap In Singapore & HK’s Grade A Office Rents Expected To Narrow In 2022 to 2024

SINGAPORE – Data from Cushman & Wakefield (C&W) shows that the rental premium between Hong Kong and Singapore’s Grade A office markets have narrowed significantly from 2015 to 2020, and this trend is expected to continue in the next few years, according to a press release published on MediaOutReach on Tuesday afternoon (24 August, SGT).

In 2014, the gap between Grade A office rents between the 2 financial hubs was just 71 percent, but it surged to 135 percent during the following year as Hong Kong office rents rallied because of tight supply conditions and robust demand from corporate occupiers, particularly from Chinese financial institutions seeking prime multi-floor office space in the Chinese territory’s central business district (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,” noted the property consultancy, adding that the rental gap peaked at 173 percent in 2017.

But from then, Singapore’s office market started to rebound thanks to the recovering global economy and strong demand from tech firms and coworking space operators.

By 2018, the rental disparity narrowed as Grade A office rents in the city-state increased by 15.3 percent year-on-year amidst robust demand and tight vacancies in US dollar terms. In comparison, Hong Kong only recorded a smaller rental gain of 4.9 percent on an annual basis.

In the 2nd half of 2019, business sentiment in the Chinese territory weakened amidst mass protests. Consequently, the rental gap between Singapore and Hong Kong continued to close over this time period. Thereafter, the COVID-19 pandemic further dragged down office rents in both cities. By the end of 2020, the rental disparity reached 108 percent.

“When we compared the office rental premiums between the 2 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 percent.” This made Singapore more appealing to multinational companies due to its more affordable office rent, noted C&W’s Research Head for Hong Kong, Keith Chan.

“5 years later, this gap has narrowed to 108 percent, which creates a positive opportunity for Hong Kong as it becomes more competitive,” he explained.

Looking ahead, C&W expects Singapore to see a “mild” recovery in office rents in the next few years because of lower structural demand for office space due to remote working. As for Hong Kong, the property consultancy expects office rents there to contract until 2023, further closing the rental gap between the 2 financial hubs.

“As the 2 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 Southeast Asian markets. For example, China’s tech companies including Tencent, Alibaba and ByteDance have set up bases in Singapore to tap into the opportunities within the ASEAN region,” added C&W’s Research Head for Singapore, Wong Xian Yang.