Hong Kong has been crowned the world's best location to invest in commercial property, according to a quarterly survey from the Royal Institute of Chartered Surveyors, as demand for office space in the region outweighs supply.

Both in rental and capital value expectations, mainland China and Hong Kong are the star performers in both occupier and investment markets despite the various measures taken by the respective authorities to cool demand, according to the Q2 2011 RICS Global Commercial Property Survey.

Investor demand was boosted by the healthy occupier market with tenant demand continuing on the rise in mainland China, Hong Kong and Singapore, said the report. In spite of a steady development pipeline, increasing occupier demand has pushed the net balance for availability of space into negative territory in China (from +34 down to -25) while it remains in negative territory in Hong Kong (at -15).

Henry Li, RICS China chairman, said: "Under the impact of China's 12th 5-year plan and the new 'State Council's 8 Point Measures' introduced in January, a number of fast growing commercial real estate markets across China are seeing more opportunities in urban, economic and social development. There is an increasing trend of the top 20 Chinese developers shifting their long term investment strategies from residential to commercial."

Looking at the local commercial property market, David Faulkner at RICS Hong Kong said: "With the government introducing various measures to cool the residential market, investors have shifted their interest to the commercial sector. However, properties for sale remain scarce and few transactions are taking place. Rental growth is driven by the high occupancies resulting from the shortage of available space in both the office and retail sectors, whilst demand remains strong."

Central and Eastern Europe buoyant

The RICS survey showed core Europe was also fairly positive with Germany scoring highly in both the occupier and investment markets. A shortage of stock is driving up rents while investors remain upbeat about the country's economic situation. Meanwhile in peripheral Europe, Greece, the Republic of Ireland and Portugal (as well as Spain) sit around the bottom of the rankings for most of the key indicators.

Sentiment in Japan and the UAE was also negative, said the report. Japan is still recovering from the fallout of the March earthquake and the outlook for Q3 is weak.

Meanwhile, the survey suggests that the recovery in real estate in the US may have run out of steam in the second quarter as the wider economy also suffered a setback. Rental expectations, which had turned positive in Q1, moved back into negative territory. That said, the results from the investment side of the market appear to be holding up better with demand still rising, albeit a little more modestly than previously, and capital value expectations edging upwards.