Hong Kong’s Central Business District (CBD) has risen to second place pushing Tokyo’s Inner Central to third place. Mumbai is now in fourth position on the list while Moscow remains in fifth in the CBRE rankings, which tracks occupancy costs for prime office space in 176 cities around the globe.
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.“Currency fluctuations play a big role in market rankings for the top 10 for office costs, but the ‘most expensive club’ still includes the usual suspects — London, Hong Kong and Tokyo,” said Dr. Raymond Torto, CBRE’s Global Chief Economist.
The report also found that on a year-over-year basis, global occupancy costs are searching for a bottom, with the markets monitored revealing a collective drop of -4.6% worldwide over the 12-month period ending March 31, 2010. Larger markets experienced a slightly greater decline of -6.4%. "The majority of markets (133) experienced a decline, with 33 of these markets registering double-digit percentage-point drops in office occupancy costs. 53 markets experienced annual increases in occupancy costs, generally smaller markets affected by quality shifts in key market assets. The EMEA region continues to have the most markets on the top 50 list with 29 markets.
“While economic data reflects improvements year-over-year, the commercial real estate market lags the economy, and our occupancy cost survey still shows falling costs,” added Dr. Torto. “On a quarter-over-quarter basis, rental data in these markets is generally starting to show a bottoming, and in some locations, such as London, even an uptick.”
It is also noteworthy that the Latin American Market—led by Brazil—was the only region to show an increase year over year in occupancy casts. Annual percent change calculations are based upon occupancy costs in local currency and measurement and not influenced by currency changes.
Europe Middle East & Africa
EMEA continues to have the most markets on the top 50 list with 29 markets. London’s West End is still the world’s most expensive market with an occupancy cost of US$182.94 per sq. ft., despite the recent depreciation of the British pound to the U.S. dollar Other markets in the region that top the list are Moscow (occupancy cost of US$125.10 per sq. ft.), Paris (US$113.23 per sq. ft.), London (City)(US$110.07 per sq. ft.) and Dubai (US$108.92 per sq. ft.).
Overall, the EMEA region had an annual decline of -6.2%, led by Moscow (-26.5%), Dublin
(-24.6%) and Abu Dhabi (-23.7%). This region as a whole experienced 44 out of 57 markets with office occupancy costs falling.
Asia-Pacific
Asia Pacific had 13 markets rank in the top 50 most expensive, with three of the top five most expensive markets. Hong Kong (Central CBD), with an occupancy cost of US$153.20 per sq. ft., was first in the region followed by Tokyo’s Inner Central, with an occupancy cost of US$143.99 per sq. ft. Mumbai, with an occupancy cost of US$125.76 per sq. ft., moved up into the top five global markets largely as a result of the recent appreciation of the Rupee to the U.S. dollar.
The most expensive market in the global ranking from the Pacific Region was Perth (US$59.29), which came in at 35th, despite also experiencing the third largest decline in local currency, at -27%.
Asia-Pacific had the largest collective occupancy cost decline with a drop of -9.2%, led by Singapore (-36.2%), Ho Chi Minh City (-30.9%), and Perth (-27.4%). The region had four of the five global markets with the largest decreases and 18 out of 27 markets in Asia Pacific experienced declines year-over-year. However, the first part of 2010 has seen improved demand for office space with several Asian markets seeing a rebound in rentals, most notable being Hong Kong’s Central CBD.
Americas
North America is led by Midtown New York, which posted an office occupancy cost of US$64.51 per sq. ft. While office occupancy costs in Midtown New York are high for North America, that market ranked just 26th globally.
North America saw a below-average decline of -3.3% (year-over-year), making the region the third weakest with falling occupancy costs in 51 out of 77 markets. The largest declines were in Calgary CBD (-24.9) and New York Downtown (-19%).
In Latin America, São Paulo moved ahead of Rio de Janeiro in ranking, posting Latin America’s highest office occupancy costs at US$100.00 per sq. ft. and is now ranked the 10th most expensive market globally marking the first time that market has been in the top ten. This is a combination of the appreciation of the REAL against the U.S. dollar over the past year, the scarcity of new office product and the strength of the local office market.
Latin America is holding up better than the rest of the world and is the only region posting positive gains, with an average 3.4% increase. Out of the 15 markets in the region, only three experienced declines. The largest increases were in Brazil, in both Rio de Janeiro (17.7%) and São Paulo (15.9%). In Brazil, recovery started in 2Q2009, so the annual change is reflective of the trough for the office market. In Rio de Janeiro and São Paulo, newly completed Class A+ space is contributing to rising office occupancy costs.
Top Ten Most Expensive Markets
Fastest Changing Occupancy Costs
1.) London West End, United Kingdom
2.) Hong Kong (Central CBD)
3.) Tokyo, (Inner Central), Japan
4.) Mumbai, India
5.) Moscow, Russian Federation
6.) Tokyo (Outer Central), Japan
7.) Paris Ile-de-France, France
8.) London City, United Kingdom
9.) Dubai, United Arab Emirates
10.) São Paulo, Brazil
Top 5 Decreases
1.) Singapore, Singapore
2.) Ho Chi Minh City, Vietnam
3.) Perth, Australia
4.) Moscow, Russian Federation
5.) Tokyo, (Inner Central), Japan
Top 5 Increases
1.) Rio de Janeiro, Brazil
2.) São Paulo, Brazil
3.) Tel Aviv, Israel
4.) San Salvador, El Salvador
5.) Seoul (CBD), South Korea
Source: CB Richard Ellis Global Research and Consulting
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Poland
