by Brianna Crandall — March 20, 2015—London’s West End is the world’s most expensive office market for the third consecutive year, retaining its title ahead of runner-up Hong Kong, according to research published recently in international real estate services firm Cushman & Wakefield’s (C&W) annual Office Space Across the World global ranking.
Prime rents in London’s West End have risen 4.6% over the year but are still 13% behind the 2007 peak. However, further positive rental growth is anticipated against a backdrop of limited supply and expected development completions in 2015, according to the report.
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Global office rents rose 7% in 2014, more than double the circa 3% annual compound increase since 2010. Overall, last year saw foundation cities from around the world reaffirm their position in the global hierarchy at the expense of smaller, peripheral markets.
Challenges remain for occupiers, not just in terms of property fundamentals, but also geopolitical risks, which some are viewing with understandable caution, according to the report. These factors are being leveraged by some occupiers to negotiate more flexible lease terms or lower rents, particularly in locations with oversupply.
REGIONAL RANKING: THE AMERICAS
Ron Lo Russo, president, New York tri-state region, Cushman & Wakefield, said, “The accelerating US economic recovery is quickly propelling the Manhattan office market beyond equilibrium in favor of landlords, resulting in falls in the amount of quality space available, which should lead to solid rental increases in 2015.”
New York’s Manhattan (Midtown: Madison/5th Avenue) secures the top spot in the region, followed by Rio de Janeiro and So Paolo in Brazil. There was no movement in the top three cities in 2014, which are consistent with those seen in 2013.
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New York City continued to record healthy employment growth and as it has been throughout the recovery, much of the growth in office-using jobs has been in the technology, advertising, media and information industries.
Occupier activity in New York City was powered by large deals with total take-up reaching a “staggering” 32.8 million sq. ft. in 2014 — the highest level in more than 15 years. Activity was bolstered by the return of the “mega-deal,” as 28 new deals in excess of 100,000 sq. ft. were completed, while robust leasing activity pushed vacancy rates to single digits for first time since July 2012.
Houston is a noteworthy market, given its exposure to the oil sector that has seen barrel prices plummet over the last few months. This did not impact rents in 2014, but the effect is expected to be seen in 2015 as companies take a strategic approach on how quickly the recovery will come and what it will look like. Demand for new office space is expected to slow, as is the rate of new construction. However, job growth is expected to take place in Houston, just not at the rate of previous years, and the current economic situation is expected to be more of a temporary “pause” than a “standstill.”
Bogota is the star performer of the Americas in terms of occupancy cost growth (26.2%), which propelled the city from 14th position in Cushman & Wakefield’s 2013 Americas regional ranking to sixth in 2014.
For the regional rankings for the EMEA (Europe / Middle East / Africa) and Asia Pacific regions, along with explanations, see the firm’s news release.
