London West End office 18th December 2014

London’s West End remained the world’s highest-priced office market but Asia continued to dominate the world’s most expensive office locations, accounting for three of the top five markets, according to Global Prime Office Occupancy Costs survey.

The study also found that prime rents are rising fastest in the Americas, where real estate fundamentals continue to improve. Overall, the U.S. accounted for five of the 10 markets with the fastest growing prime occupancy costs. These markets were Seattle (Suburban), San Francisco (Peninsula), Boston (Suburban), San Francisco (Downtown) and Seattle (Downtown). London West End’s overall prime occupancy costs of US$274 per sq. ft. per year topped the “most expensive” list. Hong Kong (Central) followed with total prime occupancy costs of US$251 per sq. ft., Beijing (Finance Street) (US$198 per sq. ft.), Beijing (Central Business District (CBD)) (US$189 per sq. ft.) and Moscow (US$165 per sq. ft.) rounded out the top five.

Stewart Smith, Executive Director, Central London Tenant Advisory Group, CBRE, said: “We reported last year that the West End had unseated Hong Kong as the world’s most expensive office market, a trend that has continued throughout 2014. However, we should counter this with the fact there is still opportunity for those looking for lower occupancy costs outside of the core West End markets of Mayfair and St James’s, and these opportunities will grow with the introduction of Crossrail in 2018 and the ongoing expansion of London as an international business centre. “New locations around transport hubs offering good connectivity and lifestyle choices will increase in popularity, whilst locations that already have strong development pipelines, such as Midtown and Victoria, provide outstanding alternatives to the traditional prime markets of Mayfair and St James’s.”

The change in prime office occupancy costs mirrored the gradual, multi-speed recovery of the global economy. Global prime office occupancy costs rose 2.5 percent year-over-year, led by the Americas (up 4.1 percent) and Asia Pacific (up 2.8 percent).

Meanwhile, EMEA was essentially flat, edging up 0.3 percent year-over-year. “We expect the gradual recovery of the global economy to continue, leading to better hiring rates and further reduction in the availability of space across most markets over the near term,” said Richard Barkham, Global Chief Economist, CBRE. “In this environment, we expect occupancy costs to continue rising from current levels, further limiting options for occupiers. Technology, quality and flexibility are expected to increasingly come into consideration in space use and location decisions, as occupiers will seek to contain costs and improve productivity.”

 Of the top 50 “most expensive” markets, 20 were in EMEA, 20 were in Asia Pacific and 10 were in the Americas. Europe Middle East & Africa (EMEA) The Eurozone’s tepid economic recovery has held back occupier activity, resulting in static prime occupancy costs in most core European markets. The region’s 0.3 percent year-over-year increase in prime occupancy costs was primarily driven by buoyant conditions in U.K. cities, most Nordic markets, and the strong recovery of the Dublin office market. The main decreases have been in central European markets, such as Warsaw (down 1.6 percent), where the economies are relatively healthy but new supply has driven down rents. In only a few markets, notably Dublin (up 34.9 percent) and London, a robust recovery in occupier demand coincided with a lack of new supply.

In addition to London West End, other markets from the region on the global top 10 list were Moscow (US$165 per sq. ft.) and London City (US$153 per sq. ft.).

Asia Pacific Asia Pacific had 20 markets ranked in the top 50 most expensive, including seven of the top 10—Hong Kong (Central), Beijing (Finance Street), Beijing (CBD), New Delhi (Connaught Place - CBD), Hong Kong (West Kowloon), Tokyo (Marunouchi Otemachi) and Shanghai (Pudong). Occupier activity in the region was largely driven by domestic corporations and companies in the technology, media and telecommunications sectors. Half the markets saw costs increase above 1 percent. Hong Kong (Central) remained the only market in the world—other than London’s West End—with a prime occupancy cost exceeding $200 per sq. ft. The most expensive market in the global ranking from the Pacific Region was Sydney (US$99 per sq. ft.), in 19th place.

Americas In the U.S., where the economic recovery has firmly taken hold, strong leasing activity led to the highest level of quarterly net absorption since 2007, driving above-inflation increases in prime occupancy costs across all but one major U.S. market. Additionally, increasingly broad-based rising hiring rates have boosted demand for office space. Eight North American markets recorded double-digit increases in prime occupancy costs in Q3 2014, and the top six growth markets in the Americas were all U.S. cities. New York Midtown, the 11th most expensive market in the world, remained the most expensive Americas market, with a prime office occupancy cost of US$121 per sq. ft. Rio de Janeiro remained the most expensive market in Latin America, posting an office occupancy cost of US$101 per sq. ft. and ranking as the 18th most expensive market globally.

Top 10 Most Expensive Markets (In US$ per sq. ft. per annum) Rank Market Occ. Cost

1 London West End, United Kingdom 273.63

  2 Hong Kong (Central), Hong Kong 250.61

  3 Beijing (Finance Street), China 197.75

  4 Beijing (CBD), China 189.39

  5 Moscow, Russian Federation 165.05

  6 New Delhi (Connaught Place - CBD), India 158.47

  7 Hong Kong (West Kowloon), Hong Kong 153.65

  8 London City, United Kingdom 152.67

  9 Tokyo (Marunouchi Otemachi), Japan 136.46

  10 Shanghai (Pudong), China 127.89