London's West End Regains Title of World's Most Expensive Office Market

London, 3 December 2009 — London’s West End has again been named the world’s most expensive office market, according to the latest research from CB Richard Ellis (CBRE). The semi-annual survey of global office rents shows the West End again leading Tokyo’s Inner Central District which slipped to second place, followed by that city’s Outer Central District market in third. Hong Kong’s Central Business District (CBD) and Moscow are fourth and fifth respectively in the report, which tracks office occupancy costs in nearly 180 cities around the globe.

Office markets worldwide are experiencing declines in prime office occupancy costs. The year-over-year change in prime office occupancy costs of the 179 markets monitored revealed a collective drop of 7.7% worldwide over the 12-month period ending September 30, 2009 (in local currency and on an un-weighted average basis). The majority of markets experienced an annual decline – 131 markets in total – while nearly 50 markets registered double-digit percentage-point drops in office rents year-over-year.

Many of the world’s bell-weather financial centers have seen unprecedented declines and are at the top of the list of fastest changing markets, including Hong Kong Central CBD(-40.7%) and New York, Midtown (-29.7%), along with emerging markets such as Ho Chi Minh City (-45.4%) and Abu Dhabi (-38.6%). Kiev, Ukraine, led the world with the largest year-over-year decrease in office occupancy costs, falling 64.6% from year-ago levels.

“While there are signs that commercial real estate values are stabilising in some markets in Asia and parts of London, underlying property fundamentals are still weak,” said Dr. Raymond Torto, CBRE’s Global Chief Economist. ”However the office market may be on the cusp of moving from ‘intensive care’ to the ‘recovery’ stage – the first step to getting back to good health.”

Stewart Smith, Executive Director in CBRE’s Central London team, said: “At the peak of the market in 2008, West End rents were around £120 per sq ft and they are now down to around £80, however deals are being done at higher levels for premium addresses.”
“At the end of the Summer we saw a sharp rise in activity in the West End, with take-up reaching 846,000 sq ft in the last quarter - the strongest this year. Demand remains concentrated, with banking, finance and business services accounting for two-thirds of activity.”

Recent office leasing transactions in London’s prime West End location, Mayfair, include three transactions at 23 Saville Row with: Hauser & Wirth taking 6,000 sq ft this month at a market-leading rent; General Atlantic Partners taking 8,700 sq ft in September at £85 per sq ft and Resolution plc taking 10,500 sq ft in September at £91 per sq ft. Additionally, at 49 Park Lane, US law firm WilmerHale took the entire newly completed building totalling 25,000 sq ft.

“In terms of rental growth, the impact of low levels of development in central London is likely to lay the foundation for medium term rental recovery,” Smith said.

“The projected three-year average completion rate will drop well below 2 million sq ft per annum in 2012-13 which, on past form, would see office rents rising again by the time London hosts the Olympics.

“We expect that demand will return to the market and occupiers will again be forced to pay a premium to secure prime offices. With the market now viewed to be at the bottom of the current cycle, we expect that the current window of opportunity for occupiers to secure advantageous terms will only be open for a short time.”

According to the report, forty-one markets across the world experienced positive rental growth. Aberdeen, Scotland and Rio de Janeiro, Brazil both grew by more than 10% as not all markets have been as affected by the decline in global demand, and demand for office space has proven resilient in some areas due to the local market dynamics.

Office occupancy costs measured in U.S. dollars are affected by changes in the dollar’s value versus the respective local currency. Hence, office occupancy costs when converted into U.S. dollars are driven by both the local market dynamics of supply and demand, as well as currency changes.

Tokyo (Inner Central) was Asia’s most expensive market with an occupancy cost of $172 per sq ft while that city’s Outer Circle market was second with occupancy costs of $139 per sq ft Hong Kong (CBD) follows with occupancy costs of $138 per sq ft Mumbai and New Delhi were the other two Asia-Pacific markets in the world’s top 10 most expensive cities roster.

For the Asia Pacific region, the office markets that experienced the largest decreases include Singapore (-53.4%), Ho Chi Minh City (-45.4%), as well Hong Kong which declined over 30% in the past year. The Asia-Pacific region had 17 cities with double-digit declines in office occupancy costs.

Europe, Middle East and Africa
London’s West End was the world’s most expensive office market at $185 per sq ft. Moscow was second in Europe with occupancy costs at $132 per sq ft. Dubai, Paris and the City of London were all in the top 10 most expensive markets.

Kiev, Ukraine led the world with the largest year-over-year decrease in office occupancy costs, falling 64.6% from year-ago levels. Other markets in Europe that are experiencing the largest decreases include Moscow, Oslo, Warsaw and Dublin. The EMEA region had 17 cities with double-digit declines in office occupancy costs.

Two cities in Brazil -- Rio de Janeiro and São Paolo -- have supplanted New York’s Midtown as the most expensive office location in the Americas. Rio de Janeiro’s occupancy costs of $87 per sq ft, was good for 12th place on the global list, while São Paulo came in at 16th globally with occupancy averaging $82 per sq ft. New York’s Midtown’s market has dropped to third in the Americas and 24th globally with occupancy costs of $69 per sq ft.

Boston’s CBD led the pack, with a decline of 33.9% year-over-year, followed by New York’s Downtown and Midtown markets. Fifteen markets in North America posted double-digit declines. Meanwhile, Latin America held up stronger than the rest of the world, with only six cities registering a decline, including a 6.3% decrease in Buenos Aires, Argentina.

Download the Global Office Occapancy Costs Report here
Download the Global Office Occapancy Costs Report here