NEW YORK—Midtown moved up two places to rank as the world's third-most expensive office market, surpassing Moscow and Tokyo, according to research unveiled today by Cushman & Wakefield.
The firm's annual Office Space Across the World global ranking, notes that occupier activity in New York City was powered by large deals with total take-up reaching a staggering almost 33 million square feet 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. Robust leasing activity pushed vacancy rates to single digits for first time since July 2012.
Midtown space brought rents that averaged $131 per square foot annually, while Hong Kong's CBD brought $184, and London's West End tenants paid $284 for the same amount of space.
Elsewhere in the Americas, Rio de Janeiro and São Paolo command high prices in Brazil, and Bogota, Columbia leaped from the 14th highest rents to the 6th. Houston may have slowed a bit, due to weakening of the energy sector, but it is still in the game.
Globally, 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, C&W says, not just in terms of property fundamentals, but also geopolitical risks which some are viewing with understandable caution. These factors are being leveraged by some occupiers to negotiate more flexible lease terms or lower rents, particularly in locations with oversupply.
C&W says Manhattan should be be a landlord's market the rest of the this year.
“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,” says Ron Lo Russo, president, New York tri-state region, Cushman & Wakefield,
For the America's region there was no movement in the top three cities in 2014, which are consistent with those seen in 2013.
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.
Houston is a noteworthy market, the report says. “Given its exposure to the oil sector that has seen barrel prices plummet over the last few months.”
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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 but 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%) and propels the city from 14th position in Cushman & Wakefield's 2013 Americas regional ranking to sixth in 2014.
Looking at Europe, Cushman & Wakefield's head of EMEA offices, James Young, notes that development has been slow.
“A key theme of the European office market is the low level of development delivered over the last two year,” Young says. Despite a recent uptick in construction activity, the revival is supply-led as occupiers continue to search for quality space that provides the right environment for staff in a highly competitive employment market.”
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.
Asia's markets should experience continued growth Cusham & Wakefield says.
“Leasing activity across Asia Pacific continues to strengthen but to a varying degree,” said John Siu, managing director with Cushman & Wakefield in Hong Kong With pent-up demand in some of the core locations and service sector growth positive, 2015 is expected to see further rental growth in most of the gateway cities of the region.”
The majority of core markets are seeing vacancy rates below 7%, the study shows, and will therefore be able to sustain some new development as well as maintain rental values.
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David Phillips
David Phillips is a Chicago-based freelance writer and consultant with more than 20 years experience in business and community news. He also has extensive reporting experience in the food manufacturing industry for national trade publications.
