Hong Kong-central remains world's most expensive office market, London West End & Tokyo follow
The dominance of Asia-Pacific in the top 10 most expensive business locations worldwide continued, led by Hong Kong-Central – the world’s most expensive market - and five other Asian markets, according to CBRE Global Research and Consulting’s Prime Office Occupancy Costs survey.
Hong Kong Central led the “most expensive” list with overall occupancy costs of US$246.30 per sq. ft. per year. This topped London’s West End, which had total occupancy costs of US$219.81. Tokyo (Marunouchi Otemachi) was the third most expensive market for office space, followed by Beijing’s CBD and New Delhi’s CBD. Other Asia-Pacific markets in the top ten include Beijing-Finance Street (6th) and Hong Kong-West Kowloon (7th).
Despite economic headwinds, occupancy costs increased by an average of 2.1% worldwide over the past year, led by the Americas with a 5.2% annual increase and Asia Pacific with a 2.6% increase. EMEA continued to be hindered by economic recession in much of Europe and recorded a 0.4% decrease in prime occupancy costs. Prime office occupancy costs increased in 74 markets, decreased in 37 office markets and had no change in 22 markets.
“The global office market recovery cooled over the past year, hampered by the ongoing European debt crisis, a deceleration of growth in emerging markets and ubiquitous uncertainty created by the ‘fiscal cliff’ in the U.S.,” said Dr. Raymond Torto, CBRE’s Global Chief Economist. “However, tight market conditions, strong demand for high quality space and low levels of new construction continue to drive up occupancy costs in many prime office markets across the globe.”
CBRE tracks occupancy costs for prime office space in 133 markets around the globe. Of the top 50 “most expensive” markets, 19 are in EMEA, 18 are in Asia-Pacific and 13 in the Americas.
While comparisons in dollars are affected by currency exchange rates, annual percent change calculations are based upon occupancy costs in local currency and not influenced by currency changes.
Asia Pacific had 18 markets ranked in the top 50 most expensive, with four of the top five—Hong Kong-Central, Tokyo (Marunouchi Otemachi), Beijing CBD and New Delhi’s Connaught Place CBD. Hong Kong Central’s position as the most expensive office market continued to be driven by limited new supply and tight market conditions. Despite its most-expensive ranking, Hong Kong Central experienced the largest annual decrease worldwide (-17.8%) as cost-cutting among large financial institutions and big banks dramatically lowered prime office occupancy costs. The most expensive market in the global ranking from the Pacific Region was Sydney (US$119.04 per sq. ft.), which came in at 14th.
North America is led by New York’s Midtown, which posted an office occupancy cost of US$114.30 per sq. ft., on the strength of a 7.3% year-over-year increase. The New York Midtown market was ranked 16th globally.
San Francisco (Downtown) experienced the largest year-over-year increase, at 36.4%, of the 133 markets tracked with an occupancy cost of $90.00 per sq. ft. San Francisco’s Peninsula market was not far behind, rising 28.6% to reach $62.10 per sq. ft. Many of the markets with the largest increases in prime occupancy costs have seen strong demand from the energy, automotive or high-tech sectors, as well as low vacancies and limited prospects for new supply. As a result, occupancy costs have increased rapidly in San Francisco, Seattle (Suburban), Calgary (Downtown), Vancouver (Downtown), Denver (Downtown) and Houston (Suburban).
In Latin America, São Paulo remains the most expensive market, posting an office occupancy cost of US$130.07 per sq. ft., and ranks as the 10th most expensive market globally. Meanwhile, with an occupancy cost of $121.40 per sq. ft., Rio de Janeiro is also in the top 12.
Europe, Middle East & Africa (EMEA)
In addition to London’s West End ranking as the world’s second-most expensive market, other markets in the region that top the list are Moscow (occupancy cost of US$172.82 per sq. ft.) and London’s City (US$131.76 per sq. ft.).
Continuing economic contraction in the Eurozone led to double-digit or near-double-digit declines in prime occupancy costs in Thessaloniki and Athens, Greece, and Malaga, Spain, as business sentiment suffered and occupiers remained cautious. Subdued demand also led to occupancy cost declines in Portugal and Ireland.