SINGAPORE - Hong Kong's office rents are almost three times higher than those in Singapore as property markets in the two cities diverged sharply in recent years, ccording to a report by Cushman & Wakefield.

The gap has boosted Singapore's appeal as a competitive business hub and made it a more attractive location for companies to house their regional headquarters, said the report released on Friday (March 3).

Hong Kong's office rental premium over Singapore - in US dollars and after adjusting for inflation - has reached 195 per cent as of end 2016, according to an analysis done by Cushman & Wakefield.

Scarce supply in Hong Kong's Central area helped push rents higher, while the situation has been just the reverse in Singapore, which has created ample office supply in the newer financial district of Marina Bay.

The rental gap between Singapore and Hong Kong is even higher than the 189 per cent in 2010 during the post-financial crisis period, and is in stark contrast to the narrow gap of just 47 per cent in 2003 during the Sars outbreak.

The difference in rental movement between the two markets is particularly stark when compared over a longer time period, said the commercial real estate services company. As of end 2016, Singapore Grade A office rents, adjusted for inflation, were 13.4 per cent lower than rents in 2000. In contrast, Hong Kong rents were 81 per cent higher than that in 2000.

Hong Kong's office market has in recent years been buoyed by the weight of demand from banks and financial firms from the mainland, stirred by the introduction of the Shanghai and Shenzhen Stock Connect programmes in late 2015 and 2016 respectively, said the report. It is also seen as a natural base for international banks and financial firms focusing on the Chinese market.

In contrast, the competitive leasing environment in Singapore has prompted developers to offer more attractive leasing terms to drive occupancy rates.

With limited new Grade A office supply in Greater Central over the next few years, availability in Hong Kong's CBD will remain tight. The bulk of new options will occur out of its core office market. In comparison, Singapore's pipeline of office supply in the core business districts remains healthy.

What this means is that Hong Kong's rental premium vis-à-vis Singapore will likely be sustained into the medium term, said Sigrid Zialcita, Managing director, Asia Pacific research at Cushman & Wakefield.

"It is likely that, in the current situation, some companies will perceive Singapore's CBD as having more value," she added.