Demand for the best space in the best locations continues to be strong: World’s Most Expensive Office Markets. London Unseats Hong Kong.
London’s West End replaced central Hong Kong as the world’s most expensive office property market, but Asia continued to dominate the world’s most expensive office locations, accounting for four of the top five markets, according to CBRE Global Research and Consulting’s semi-annual Global Prime Office Occupancy Costs survey.
The study also found that rents are rising fastest in the Americas, where real estate fundamentals continue to improve. Overall, the Americas accounted for eight of the 10 markets with the fastest growing occupancy costs with Boston (Downtown), Mexico City and San Francisco (Downtown) included among the top 5.
“The growth of occupancy costs for prime office space in the past year underscores that even in a slowly recovering economy, demand for the best space in the best locations continues to be strong,” said Raymond Torto, Global Chairman, CBRE Research.
London’s West End’s overall occupancy costs of US$259.36 per sq. ft. per year topped the “most expensive” list.
Hong Kong-Central followed with total occupancy costs of US$234.30. Beijing’s Finance Street, Beijing’s Central Business District (CBD) and Hong Kong’s West Kowloon rounded out the top five.
Globally, occupancy costs rose 2.2% for the 12 months ending Q3 2013, up from the 1.4% annual growth rate seen at the end of Q1 2013. All three of the world’s regions saw annual growth, led by the Americas, at 4.6%, followed by Asia Pacific, at 3.2%, and EMEA, at 0.4%. This performance reflects the relative strength of the recovery across global regions.
CBRE tracks occupancy costs for prime office space in 126 markets around the globe. Of the top 50 “most expensive”
markets, 20 are in Asia Pacific, 19 are in EMEA and 11 are in the Americas.
Asia-Pacific had 20 markets ranked in the top 50 most expensive, including six of the top ten— Hong Kong Central, Beijing’s Finance Street, Beijing’s CBD, Hong Kong-West Kowloon, New Delhi’s Connaught Place CBD and Tokyo (Marunouchi/Otemachi).
Several key Asia markets have a limited supply of prime office space, which are in demand by major institutions (often large multinational or financial services firms); competition for this limited prime space has driven prime occupancy costs higher.
Though Hong Kong (Central), at US$234.30 per sq. ft. per annum, dropped to second place, it remained the only market in the world other than London’s West End with an occupancy cost exceeding $200 per sq. ft. per annum. The cautious approach to decision-making by large occupiers, coupled with a vacancy rate higher than most other districts in Hong Kong, has pressured Central landlords to become more flexible in rental negotiations. As a result, occupancy costs have dropped 4.7% on a local currency basis over the past 12 months.
The most expensive market in the global ranking from the Pacific Region was Sydney (US$104.39 per sq. ft.), which came in at 17th.
Europe Middle East & Africa (EMEA)
Though EMEA posted the lowest 12-month increase in prime occupancy costs among global regions, it was home to the world’s most expensive market, with London – Central (West End), at US$259.36 per sq. ft. per annum. Development restrictions in core areas of London have contributed to the West End’s low vacancy rate and placed upward pressure on occupancy costs—which rose 14.3%. At the same time demand is rising from financial firms, such as hedge fund managers, which were more willing to pay a premium for prime office space in the most prestigious areas.
Other markets from the region in the list’s top ten are Moscow (US$165.05 per sq. ft.), London’s City (US$142.71 per sq. ft.) and Paris (US$122.10 per sq. ft.).
Palma de Mallorca, Spain, and Valencia, Spain, were the only two markets globally that posted a double-digit decrease in prime occupancy costs, falling 11.3% and 10.7%, respectively, over the past 12 months, a reflection of the effects of the lingering Eurozone crisis.
Top Ten Most Expensive Markets (In US$ per sq. ft. per annum):
1. London – Central (West End), United Kingdom – 259.36
2. Hong Kong (Central), Hong Kong – 234.30
3. Beijing (Finance Street), China – 197.05
4. Beijing (CBD), China – 189.67
5. Hong Kong (West Kowloon), Hong Kong – 170.42
6. Moscow, Russian Federation – 165.05
7. New Delhi (Connaught Place – CBD), India – 156.65
8. Tokyo (Marunouchi Otemachi), Japan – 154.67
9. London – Central (City), United Kingdom – 142.71
10. Paris, France – 122.10
Top 5 Decreases in prime office space prices:
1. Palma de Mallorca, Spain – -11.3
2. Valencia, Spain -10.7
3. Milan, Italy -7.1
4. São Paulo, Brazil -5.9
5. Mumbai (Nariman Point – CBD), India -5.1.
Top 5 Increases in prime office space prices:
1. Jakarta, Indonesia 76.9
2. Boston (Downtown), U.S. 15.4
3. Mexico City, Mexico 14.7
4. London – Central (West End), United Kingdom 14.3
5. San Francisco (Downtown), U.S. 13.3.