Office Rents Stabilize Globally

NEW YORK CITY-Don’t look for Midtown Manhattan in a global list of the top 10 markets for office occupancy costs. It won’t be found in a list of the top 20, either. The most expensive office market in North America, Midtown comes in at 26th worldwide with an average occupancy cost (including rent and other expenses) of $66.59 per square foot as of Sept. 30. That’s a 4.5% year-over-year decline and just over one-third the $193.69 average per square foot commanded in London’s West End.

So says CB Richard Ellis in its semiannual Global Office Rents survey, released Wednesday. Of the 175 markets surveyed worldwide, 99 are in the same situation as Midtown Manhattan: i.e. their occupancy costs, led by rents, have fallen year over year.

Even so, with only a 1.3% average decline globally in the past 12 months, office rents are stabilizing, according to CBRE. That compares to a 6% year-over-decline the last time the survey was conducted, Dr. Raymond Torto, CBRE’s global chief economist, said on a New York-based conference call Wednesday.

“As everybody knows, global economic growth in the third quarter was what you might call subpar,” Torto said. “But if you look underneath the global average, there really is a tale of true recoveries that are occurring.”

He divided those recoveries into two categories: the “calm” economies of Europe and North America, and the “galloping ones” seen in the Asia Pacific region. Some of the gateway markets in the three regions surveyed by CBRE—EMEA, the Americas and Asia Pacific—have experienced double-digit rent growth year over year, even as 19 of the 175 markets surveyed saw their rents fall off by 10% or more.

In fact, the regional acceleration or deceleration of rents in key markets points to the relative progress each region has made in terms of economic recovery. The “galloping” Asia Pacific region is home not only to three of the five most expensive office markets (Hong Kong’s Central CBD, Tokyo’s Inner Central district and Mumbai) but also some of the biggest percentage jumps in occupancy costs. Leading the way was Hong Kong Central CBD, up 34.2% in the past 12 months.

In the EMEA region, which holds 30 of the top 50 markets in terms of office occupier costs, the biggest year-over-year increase was managed by London City, up 17.5%, followed by Tel Aviv at 13.4%. At the other end of the spectrum, 28 EMEA markets experienced cost declines, led by markets that had been overbuilt, including Dubai (-12.5%) and Dublin (-12.4%).

As for the Americas, Brazil appears to be where the action is as far as rent growth is concerned. Sao Paolo and Rio de Janeiro rank ninth and 10th, respectively, among the world’s most expensive office markets, while also ranking third and fifth among the fastest-growing markets globally in terms of occupancy costs. In North America, the best performance was turned in by Atlanta, where occupancy costs rose 7% over a 12-month period.

Asked when North American office markets will start to catch up with other regions, Torto tells GlobeSt.com,  “We’re stabilizing in the United States. We anticipate that in 2011, rents will have stabilized and we’ll start to see some increases—of significance, actually—in the second half and into 2012.”