London's West End remained the world's most expensive office market, according to CBRE's new Global Prime Office Occupancy Costs report, but Asia continued to dominate the world's most expensive office locations, accounting for three of the top five markets.
The study also discovered that rents are increasing at the highest rate in the Americas, where real estate fundamentals are steadily improving. Overall, five of the ten markets with the fastest-growing occupancy costs were in the United States. Seattle (Suburban), San Francisco (Downtown), San Francisco (Peninsula), Houston (Suburban), and Houston (Peninsula) were the markets in question (Downtown). doha sale
The "most expensive" list was topped by London West End's average occupancy costs of US$277 per sq. ft. per year. With total occupancy costs of US$242 per sq. ft., Hong Kong (Central) came in second. The top five cities were Beijing (Finance Street) (US$194 per sq. ft.), Beijing (Central Business District (CBD)) (US$187 per sq. ft.), and Moscow (US$165 per sq. ft.).
The Americas (up 3.3 percent) and Asia Pacific (up 2.3 percent) led the way in terms of global prime office occupancy costs (up 2.9 percent ). Meanwhile, EMEA was virtually unchanged year over year, dropping 0.1 percent. The regional findings are in line with recent economic developments, which show that the American economy has outperformed the EMEA economy over the last year. Though Asia Pacific's economy grew the fastest of the three regions, it also has a wide pipeline of office projects in the works, putting downward pressure on costs in key markets.
"We expect that occupancy costs will begin to rise in the second half of 2014. Despite the fact that occupiers are still cost conscious, demand for prime office space continues to rise "CBRE Research's Global Chairman, Dr. Raymond Torto, said. "There is not enough new construction to satisfy demand in most markets, with the exception of a few in Asia Pacific. As a result, market rents for prime properties are projected to rise in the coming months, which, when combined with the increasing cost of operating office buildings, will drive up occupancy costs in most markets."
CBRE monitors prime office space occupancy costs in 126 markets around the world. Twenty-one of the top fifty "expensive" markets were in EMEA, twenty in Asia Pacific, and nine in the Americas.
Currency exchange rates influence occupancy cost comparisons in US dollars. The annual percent adjustment in occupancy costs, on the other hand, is in local currency and is unaffected by currency fluctuations (except Jakarta, Indonesia where leases are typically written in U.S. dollars, but paid in rupiah, which means the occupancy cost increase is greatly affected by the currency depreciation in Indonesia).
Europe, the Middle East, and Africa (EMEA) had the world's most lucrative market, with London's West End fetching US$277 per square foot per year. Vacancy rates in the West End are comparatively poor due to development constraints. The recovery of the UK economy has resulted in a significant increase in demand for space. Throughout 2013 and into 2014, this demand, combined with a scarcity of available rooms, has pushed prime rents higher.
Moscow (US$165 per sq. ft.), London City (US$154 per sq. ft.), and Paris (US$124 per sq. ft.) are among the top ten markets in the area.
Both Palma de Mallorca, Spain, and Lyon, France, saw double-digit drops in prime occupancy costs over the past year, dropping 13.0% and 10.8%, respectively, reflecting the consequences of the lingering Eurozone crisis.
Asia Pacific had 20 of the top 50 most expensive markets, including six of the top ten: Hong Kong (Central), Beijing (Finance Street), Beijing (CBD), Hong Kong (West Kowloon), New Delhi (Connaught Place - CBD), and Tokyo (Marunouchi Otemachi).
Apart from London's West End, Hong Kong (Central) remained the only market in the world with an annual occupancy cost above $200 per square foot. Due to the addition of new office space at a time when occupiers are shifting cautiously in the industry, Hong Kong (West Kowloon) fell one position to sixth place, with an 8.0 percent decrease in occupancy costs. However, occupancy costs are expected to begin that in both markets in the coming months.
West Kowloon, which is just 10 minutes by subway from Central, is now home to major investment banks and has emerged as a desirable place for cost-conscious occupiers seeking quality space close to the financial district. Leasing operation in West Kowloon had slowed in the previous year, but after the Chinese New Year, demand for smaller space increased significantly, despite the market's low vacancy level making it difficult for larger occupiers to find suitable space options.
Sydney, which ranked 17th in the global ranking, was the most expensive market in the Pacific Region (US$106 per sq. ft. per annum).
High-tech and energy-related companies in markets like Seattle (Suburban), San Francisco (Downtown), San Francisco (Peninsula), Houston (Suburban) and Houston (Downtown) posted some of the highest annual prime office occupancy increases, with Seattle (Suburban) reporting a substantial 19.4 percent annual rise in occupancy costs. Rents have risen in these markets as a result of increasingly tight market conditions, with high demand from technology and energy tenants, combined with low vacancy rates, allowing landlords to dramatically raise rents.
The Americas was once again led by New York Midtown, which had the world's 11th most expensive prime office occupancy rate of US$121 per square foot.
Rio de Janeiro, with an office occupancy cost of US$110 per square foot and a rating of 13th most expensive market globally, remained the most expensive market in Latin America.