London office No 1 20th December 2013

London’s West End has unseated Hong Kong-Central as the world’s highest priced office market, but Asia continues to dominate the world’s most expensive locations, according to CBRE Global Research and Consulting’s semi-annual Global Prime Office Occupancy Costs survey.

The study 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.

The West End of London’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 off 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 performance reflects the relative strength of the recovery across global regions. “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 Dr. 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. 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).

Several key Asia markets have a limited supply of prime office space, which are in demand by major institutions (often large multinational or financial services firms); competition for this limited prime space has driven prime occupancy costs higher.

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.

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 pa. 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% - writes CBRE. 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.

Other markets from the region in the list’s top 10 are Moscow (US$165.05 per sq ft), the City of London (US$142.71 per sq ft) and Paris (US$122.10 per sq ft). Palma de Mallorca, Spain, and Valencia, Spain, were the only two markets globally that posted a double-digit decrease in prime occupancy costs, falling 11.3% and 10.7%, respectively, over the past 12 months, a reflection of the effects of the lingering Eurozone crisis.