by Brianna Crandall — January 13, 2014—London’s West End unseated Hong Kong-Central as the world’s highest-priced office 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 five.
London’s West End’s overall occupancy costs of $259.36 per sq. ft. per year topped the “most expensive” list. Hong Kong-Central followed with total occupancy costs of $234.30. Beijing’s Finance Street, Beijing’s Central Business District (CBD) and Hong Kong’s West Kowloon rounded out the top five.
The global top ten most expensive markets (in U.S. dollars per sq. ft. per annum occupancy costs) for the second half of 2013 are:
- London – Central (West End), United Kingdom: $259.36
- Hong Kong (Central), Hong Kong: $234.30
- Beijing (Finance Street), China: $197.05
- Beijing (CBD), China: $189.67
- Hong Kong (West Kowloon), Hong Kong: $170.42
- Moscow, Russian Federation: $165.05
- New Delhi (Connaught Place – CBD), India: $156.65
- Tokyo (Marunouchi Otemachi), Japan: $154.67
- London – Central (City), United Kingdom: $142.71
- Paris, France: $122.10
Globally, occupancy costs rose 2.2% for the 12 months ending the third quarter (Q3) of 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 Europe, the Middle East and Africa (EMEA), at 0.4%. This performance reflects the relative strength of the recovery across global regions, says CBRE.
“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 Dr. Raymond Torto, Global Chairman, CBRE Research.
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 the EMEA, and 11 are in the Americas.
Occupancy cost comparisons in U.S. dollars are affected by currency exchange rates. However, the annual percent change in occupancy costs are in local currency and are not influenced by currency changes (except Jakarta, Indonesia where leases are typically written in U.S. dollars, but paid in rupiah, which means the occupancy cost increase is greatly affected by the currency depreciation in Indonesia).
Americas
High-tech markets such as Boston (Downtown), San Francisco (Downtown), and Seattle (Suburban) reported some of the strongest annual prime office occupancy gains, with Boston (Downtown) posting a significant 15.4% annual increase in occupancy costs. Rents in these markets have increased as a result of extremely tight market conditions, as strong demand from technology tenants, combined with low vacancy rates, has given landlords leeway to increase rents significantly.
North America was again led by New York’s Midtown, which posted a prime office occupancy cost of $120.65 per sq. ft., reflecting a 5.6% year-over-year increase.
In Latin America, Rio de Janeiro replaced São Paulo as the most expensive market, posting an office occupancy cost of $112.22 per sq. ft. and ranking as the 13th most expensive market globally. Mexico City reported the strongest annual increase in occupancy costs in Latin America. Mexico City is in the middle of a transformation of its skyline, with the market delivering high-quality buildings with elevated prime rents. This new, high-priced supply, coupled with strong occupier demand, has led to higher occupancy costs, which were up 14.7% year-over-year.
Full results of the Global Prime Office Occupancy Costs survey are available for free download with log-in.
