London Surpasses Hong Kong As Priciest Office Market

LONDON-The city's West End has unseated Hong Kong-Central as the world's most expensive office market, but Asia continues to dominate the world's most expensive office locations, accounting for four of the top five markets. This, according to CBRE Global Research and Consulting's semi-annual Global Prime Office Occupancy Costs survey.

The study also found that rents are rising fastest in the Americas, where real estate fundamentals continue to improve.  Overall, the Americas accounted for eight of the 10 markets with the fastest growing occupancy costs with Boston (Downtown), Mexico City and San Francisco (Downtown) included among the top five.

London's West End's overall occupancy costs of US $259.36 per sq. ft. per year topped the “most expensive” list. Hong Kong-Central followed with total occupancy costs of US $234.30. Beijing's Finance Street, Beijing's Central Business District (CBD) and Hong Kong's West Kowloon rounded out the top five.

Globally, occupancy costs rose 2.2% for the 12 months ending Q3 2013, up from the 1.4% annual growth rate seen at the end of Q1 2013. All three of the world's regions saw annual growth, led by the Americas, at 4.6%, followed by Asia Pacific, at 3.2%, and EMEA, at 0.4%.

“The growth of occupancy costs for prime office space in the past year underscores that even in a slowly recovering economy, demand for the best space in the best locations continues to be strong,” said Raymond Torto, Global Chairman, CBRE Research.

CBRE tracks occupancy costs for prime office space in 126 markets around the globe. Of the top 50 “most expensive” markets, 20 are in Asia Pacific, 19 are in EMEA and 11 are in the Americas.

Occupancy cost comparisons in U.S. dollars are affected by currency exchange rates. However, the annual percent change in occupancy costs are in local currency and are not influenced by currency changes (except Jakarta, Indonesia where leases are typically written in U.S. dollars, but paid in rupiah, which means the occupancy cost increase is greatly affected by the currency depreciation in Indonesia).

Asia Pacific

Asia-Pacific had 20 markets ranked in the top 50 most expensive, including six of the top ten— Hong Kong Central, Beijing's Finance Street, Beijing's CBD, Hong Kong-West Kowloon, New Delhi's Connaught Place CBD and Tokyo (Marunouchi/Otemachi).

 Americas

High-tech markets such as Boston (Downtown), San Francisco (Downtown), and Seattle (Suburban) reported some of the strongest annual prime office occupancy gains, with Boston (Downtown) posting a significant 15.4% annual increase in occupancy costs. Rents in these markets have increased as a result of extremely tight market conditions, as strong demand from technology tenants, combined with low vacancy rates, has given landlords leeway to increase rents significantly. In Latin America, Rio de Janeiro replaced São Paulo as the most expensive market, posting an office occupancy cost of US$112.22 per sq. ft. and ranking as the 13^th most expensive market globally. Mexico City reported the strongest annual increase in occupancy costs in Latin America.

Europe Middle East & Africa (EMEA)

Though EMEA posted the lowest 12-month increase in prime occupancy costs among global regions, it was home to the world's most expensive market, with London – Central (West End), at US$259.36 per sq. ft. per annum. Development restrictions in core areas of London have contributed to the West End's low vacancy rate and placed upward pressure on occupancy costs—which rose 14.3%. At the same time demand is rising from financial firms, such as hedge fund managers, which were more willing to pay a premium for prime office space in the most prestigious areas.

Top Ten
Most Expensive Markets

(In US$ per sq. ft. per annum)