Office Prime Rents Energised By Emerging Economies
Energy demand is shifting from OECD (Organisation for Economic Co-operation and Development) to non-OECD countries1. Average office rental growth in emerging energy dependent cities2 is up 10.6% for the year, compared to established business centres3 at 2.9%, according to the latest research from global property advisor CBRE.
Technological advances, shifting patterns in demand for energy, and limited supply in some markets has seen oil prices bouncing back to pre-recession levels. OECD energy consumption fell by 1.2% y-o-y between 2011 to 2012, yet grew 4.2% across non-OECD countries over the same period. 90% of this demand is coming from emerging economies, namely China and India. This shift is impacting on the operational decisions of firms in the energy industry, with office space being sought in new markets and consolidated in established business centres.
For example Caracus, an energy dependent city in Venezuela, has seen pick up of 96.5% y-o-y in office rents. Likewise the business centre Jakarta, which sits in the emerging market of Indonesia, has seen a 49% increase. As these cities develop further as energy sector hubs, demand for real estate is set to increase, accelerating rental growth.
Luanda, the energy dependent capital of Angola, has also seen a pick-up in office rents with a 20.0% increase y-o-y to the second quarter of 2013. Angola is the second biggest oil producer in sub-Saharan Africa, with energy sector occupiers accounting for 63% of total office take-up in 2012. Significantly, with very low supply and high demand, its prime rent of $200.67 per sq ft pa, is higher than London at $149.1 per sq ft pa, which puts it second only to Hong Kong ($206.6 per sq ft pa), of the 34 cities surveyed.
Michael Armstrong, Director, Global Corporate Services, at CBRE, said:
“Energy markets are evolving. Supply is coming from an increasingly diverse range of locations. This diversification is impacting companies’ operational decisions.
“Office rental growth is trending upwards in emerging energy dependent markets, with growth lower in more mature markets. Broadly, prime office rents remain higher in established office markets over emerging markets. However, the acceleration of energy production in non-OECD countries has led to rapid increases in demand for high quality office space. Cities like Luanda, and Caracas are struggling to meet this demand which is keeping rental values high and vacancy rates low.”