According to the CBRE report, office tenants in the UK are seeing wide spread benefits, including lease flexibility, incentives and more choice when it comes to locations. "We anticipate that there will be pockets of new leasing activity as opportunistic occupiers who are in a position to break tenancies will seek to move to cheaper buildings or further consolidate their portfolio by taking additional space in an existing location," says Matthew Pullen, head of Global Corporate Services EMEA at CBRE. "Other tenants will leverage their improved negotiating positions to upgrade office premises, securing attractive terms on buildings which might previously have been beyond their reach."

Rental rates have been dropping across all of Europe and specifically in London. Across Europe, rental rates have declined an average of 2.5%, according to CBRE. The C&W study found that London is no longer the most expensive office market in the world. It has now been overtaken by Hong Kong and Tokyo.

"Although rents in Hong Kong fell, the drop was not as severe as witnessed in other leading cities such as Tokyo or London. This is primarily due to Hong Kong's comparatively low vacancy rate," says John Siu, general manager at C & W Hong Kong. "Many banking and finance occupiers have not yet reached the end of their lease, so are not currently looking to either relocate or downsize. There is also a limited supply of new stock coming on to the market in the immediate future. However, there seems little doubt that rents will continue to fall over 2009, perhaps at a faster rate then before."

In Hong Kong a prime square foot of office space costs $674.2 per year, which is still 4% lower than this time last year. Second rank, Tokyo fell 19% during 2008 to $637.9 per square foot per year. In comparison, London's West End office market declined 23% to $5910.3 per square foot per year.

"Whilst 2008 has not been a great year for London's commercial property market, the fall in rental values and weakening of sterling have meant that the city has become better value and more competitive in the global rankings," says James Young, head of Central London offices for C & W. "Although it is difficult to remain objective amongst the maelstrom of bad news that we see on a daily basis, we should not forget that London remains the number one location in Europe that international businesses choose to locate in. Its increasing cost competitiveness will only help this status."

Dublin dropped from its rank as the eighth most expensive city in the world, a position it has held for three years, to the fifteenth spot, with a 13% decline. On the other hand, Dubai's rental rates rose by 7%, moving the market from eighth place to fifth. New York City kept its rank as the tenth most expensive city in the world, with a rental rate of $321.8 per square foot per year.

Kuala Lumpur, Malaysia was the city to see the largest office rent increase during 2008. Rental rates in local currency increased by 58%. Istanbul, Turkey ranked second, followed by Abu Dhabi, UAE; and then Durban, South Africa.

Despite the drop in rental rates, vacancy numbers are rising worldwide. The CBRE report found European vacancy grew from 6.7% in Q1 2008 to 7.5% in Q4 2008. A few of the larger markets, like London and Milan, experiences increases of more than 200 basis points in the past year.

"The real winners coming out of 2009 will be those corporate occupiers who can influence further changes in their business cultures through the introduction of alternative workplace strategies, more robust planning tools and more innovative approaches to managing total occupancy costs through the building life cycle, which would include sourcing and energy management strategies," Pullen says.

Instant Insights /

World's Office Markets See Rents, Occupancy Decline

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