by Shane Henson — June 23, 2014—London’s West End remained the world’s highest-priced office market, with overall occupancy costs of $277 per square feet per year, according to CBRE Global Research and Consulting’s semi-annual Global Prime Office Occupancy Costs survey. However, Asia continued to dominate the world’s most expensive office locations, accounting for three of the top five markets. Hong Kong was ranked as the world’s second highest office market, posting an office occupancy cost of $277.21 per square feet, and Beijing came in third, posting $194.01 per square feet.
The study also found that rents are rising fastest in the Americas, where real estate fundamentals continue to improve significantly. The Americas region was again led by New York Midtown, which posted a prime office occupancy cost of $121 per square feet, which ranked as the 11th most expensive market in the world, says CBRE. Overall, the United States accounted for five of the 10 markets with the fastest-growing occupancy costs.
High-tech- and energy-related businesses in markets such as Seattle (Suburban), San Francisco (Downtown), San Francisco (Peninsula), Houston (Suburban) and Houston (Downtown) reported some of the strongest annual prime office occupancy gains, with Seattle (Suburban) posting a significant 19.4 percent annual increase in occupancy costs. CBRE says that rents in these markets have increased as a result of extremely tight market conditions, as strong demand from technology and energy tenants, combined with low vacancy rates, has given landlords leeway to increase rents significantly.
Global prime office occupancy costs rose 2.3% year-over-year, led by the Americas (up 3.3%) and Asia Pacific (up 2.9%). Meanwhile, the EMEA region (Europe, the Middle East and Africa) was essentially flat, edging down 0.1% year-over-year. The regional results are consistent with recent economic trends, in that the American economy has been stronger than EMEA’s over the past year, notes CBRE. While Asia Pacific exhibited the highest economic growth of the three regions, it also has a large pipeline of office projects, which is said to be beginning to put downward pressure on costs in key markets.
The Top 10 Most Expensive Markets (in US$ per sq. ft. per annum; by rank, market and occupancy cost)
- London West End, United Kingdom – $277.21
- Hong Kong (Central), Hong Kong – $241.92
- Beijing (Finance Street), China – $194.01
- Beijing (CBD), China – $187.00
- Moscow, Russian Federation – $165.05
- Hong Kong (West Kowloon), Hong Kong – $160.83
- London City, United Kingdom – $153.66
- New Delhi (Connaught Place – CBD), India – $153.56
- Tokyo (Marunouchi Otemachi), Japan – $145.73
- Paris, France – $124.32
Largest Annual Changes Occupancy Costs (in local currency and measure)
Top 5 Increases (by rank, market, and % change)
- Jakarta, Indonesia – 60.1%
- Seattle (Suburban), U.S. – 19.4%
- Kuala Lumpur, Malaysia – 16.7%
- Dublin, Ireland – 15.8%
- London West End, United Kingdom – 13.5%
Top 5 Decreases (by rank, market, and % change)
- Palma de Mallorca, Spain: -13.0
- Panama City, Panama: -10.9
- Lyon, France: -10.8
- Hong Kong (West Kowloon), Hong Kong: -8.0
- Valencia, Spain: -7.9
“We believe that occupancy costs are poised to accelerate in the latter part of 2014. Even though occupiers remain cost conscious, demand for prime office space is continuing to increase,” said Dr. Raymond Torto, Global Chairman, CBRE Research. “With the exception of a few markets, mostly in Asia Pacific, there is not a sufficient volume of new construction to meet demand. As such, market rents for prime properties are expected to continue rising, which, coupled with the higher cost of operating office buildings, will push up occupancy costs in most markets in the coming months.”
