by Brianna Crandall — January 9, 2015—London’s West End remained the world’s highest-priced office market, but Asia continued to dominate the world’s most expensive office locations, accounting for three of the top five markets in recent months, according to CBRE Research’s semi-annual Global Prime Office Occupancy Costs survey. The study also found that prime rents are rising fastest in the Americas, where real estate fundamentals continue to improve. Overall, the United States accounted for five of the 10 markets with the fastest-growing prime occupancy costs: Seattle (Suburban), San Francisco (Peninsula), Boston (Suburban), San Francisco (Downtown), and Seattle (Downtown).
According to the research, the cost to occupy prime office space keeps rising. As one explanation, CBRE reminds that global, multinational organizations need the highest-grade, best-located properties to attract and retain top talent—and are willing to pay a premium to obtain it. CBRE’s biannual survey ranks 126 office markets around the world by total occupancy cost (prime rent plus additional expenses such as service charges and taxes) in the highest-quality buildings within each market.
Of the top 50 “most expensive” markets, 20 were in Europe, the Middle East and Africa (EMEA); 20 were in Asia Pacific; and 10 were in the Americas. Over half (74 markets) saw annual increases in prime occupancy costs, 26% (33 markets) registered declines, and 15% (19 markets) saw no change. Of the 74 markets with occupancy cost growth, 13 saw increases of at least 10%, led by Dublin, Manila and Seattle (Suburban).
London West End’s overall prime occupancy costs of $274 per sq. ft. per year topped the “most expensive” list. Hong Kong (Central) followed with total prime occupancy costs of $251 per sq. ft. Beijing (Finance Street) ($198 per sq. ft.), Beijing (Central Business District (CBD)) ($189 per sq. ft.), and Moscow ($165 per sq. ft.) rounded out the top five.
According to the report, the change in prime office occupancy costs mirrored the gradual, multi-speed recovery of the global economy. Global prime office occupancy costs rose 2.5% year-over-year, led by the Americas (up 4.1%) and Asia Pacific (up 2.8%). Meanwhile, EMEA was essentially flat, edging up 0.3% year-over-year.
“We expect the gradual recovery of the global economy to continue, leading to better hiring rates and further reduction in the availability of space across most markets over the near term,” said Richard Barkham?, global chief economist, CBRE. “In this environment, we expect occupancy costs to continue rising from current levels, further limiting options for occupiers. Technology, quality and flexibility are expected to increasingly come into consideration in space use and location decisions, as occupiers will seek to contain costs and improve productivity.”
Regional highlights are as follows:
EMEA
The Eurozone’s tepid economic recovery has held back occupier activity, resulting in static prime occupancy costs in most core European markets. The region’s 0.3% year-over-year increase in prime occupancy costs was primarily driven by buoyant conditions in U.K. cities, most Nordic markets, and the strong recovery of the Dublin office market.
The main decreases have been in central European markets, such as Warsaw (down 1.6%), where the economies are relatively healthy but new supply has driven down rents. In only a few markets, notably Dublin (up 34.9%) and London, a robust recovery in occupier demand coincided with a lack of new supply. In addition to London West End, other markets from the region on the global top 10 list were Moscow ($165 per sq. ft.) and London City ($153 per sq. ft.).
Asia Pacific
Asia Pacific had 20 markets ranked in the top 50 most expensive, including seven of the top 10—Hong Kong (Central), Beijing (Finance Street), Beijing (CBD), New Delhi (Connaught Place – CBD), Hong Kong (West Kowloon), Tokyo (Marunouchi Otemachi) and Shanghai (Pudong). Occupier activity in the region was largely driven by domestic corporations and companies in the technology, media and telecommunications sectors.
Half the markets saw costs increase above 1%. Hong Kong (Central) remained the only market in the world—other than London’s West End—with a prime occupancy cost exceeding $200 per sq. ft. The most expensive market in the global ranking from the Pacific Region was Sydney ($99 per sq. ft.), in 19th place.
Americas
In the United States, where the economic recovery has firmly taken hold, strong leasing activity led to the highest level of quarterly net absorption since 2007, driving above-inflation increases in prime occupancy costs across all but one major U.S. market. Additionally, increasingly broad-based rising hiring rates have boosted demand for office space.
Eight North American markets recorded double-digit increases in prime occupancy costs in the third quarter (Q3) of 2014, and the top six growth markets in the Americas were all U.S. cities. New York Midtown, the 11th most expensive market in the world, remained the most expensive Americas market, with a prime office occupancy cost of $121 per sq. ft.
Rio de Janeiro remained the most expensive market in Latin America, posting an office occupancy cost of $101 per sq. ft. and ranking as the 18th most expensive market globally.
Top 10 most expensive markets (occupancy costs in U.S.$ per sq. ft. per annum)
- London West End, United Kingdom: 273.63
- Hong Kong (Central), Hong Kong: 250.61
- Beijing (Finance Street), China: 197.75
- Beijing (CBD), China: 189.39
- Moscow, Russian Federation: 165.05
- New Delhi (Connaught Place – CBD), India: 158.47
- Hong Kong (West Kowloon), Hong Kong: 153.65
- London City, United Kingdom: 152.67
- Tokyo (Marunouchi Otemachi), Japan: 136.46
- Shanghai (Pudong), China: 127.89
Top 5 annual increases in occupancy costs (change in local currency and measure)
- Dublin, Ireland: 34.9
- Manila, Philippines: 20.7
- Seattle (Suburban), USA: 20.5
- Kuala Lumpur, Malaysia: 16.7
- Singapore, Singapore: 16.5
Cost Increases Signal Economic Momentum: Global Prime Office Occupancy Costs | December 2014 is available from the CBRE Web site upon registration.
