DTZ: Outlook Stable for 2009 U.S. Office Occupancy Costs

Declining rents and rising vacancy are the bane of many landlords in the United States these days, but by another measure–total occupancy costs–prospects for 2009 look fairly positive compared to the overall global outlook. In 61 percent of markets in the United States and Canada, Class A occupancy costs are expected to remain stable, according to a study released last week by DTZ. By contrast, 78 percent of the 114 global markets surveyed by DTZ are likely to sustain a significant drop in occupancy expenses this year. Specifically, Class A office occupancy costs will decline in every major central business district in Europe and South America. Three quarters of major Asian markets also expect costs to slide this year; only 24 percent of those cities are expected to maintain stable occupancy costs. The Middle East and Africa offer some better news for landlords. That region is expected to register higher occupancy expenses in 30 percent of its central business districts–the most of any region surveyed by DTZ. Global economic tumult also shuffled the positions of the handful of office markets at the top. Central Tokyo vaulted to first place, displacing London’s West End, which slipped to fifth place in 2008. Seven out of the 10 most expensive office markets worldwide are repeaters from last year, including Paris, Hong Kong, Midtown Manhattan, Madrid and Singapore. Three new entrants to the top 10 are Dubai, Abu Dhabi and Moscow. They replaced the city of London, Frankfurt and Mumbai. DTZ developed the ranking of 114 global markets by determining the average cost of Class A office space that is functional to the tenant, including both work stations and meeting rooms and ancillary space like lobbies. Costs include rent and other items that may be paid by the tenant, such as maintenance and property taxes. Despite devastating blows to the financial services industry, occupancy costs in Midtown Manhattan increased a U.S.-leading 6 percent in 2008, ending the year at $18,450 per work station. Boston’s $15,640 per station landed it in second place, followed by Washington, D.C., at $15,130 per station. In other highlights: • Three Mexican cities sustained the biggest cost declines of any markets in Latin America: Cancun (22 percent), Guadalajara (21 percent) and Mexico City (21 percent). Despite a 14 percent drop in occupancy costs, Sao Paolo repeated as South America’s costliest office market at $6,050 per work station. • London became dramatically less expensive for end users during 2008, as average occupancy costs declined 32 percent in the West End to $21,370 per work station and 38 percent in the City to $13,000 per station. • 2008 was a strong year for growth in Persian Gulf office markets. Dubai’s occupancy costs jumped 43 percent to $21,620 per work station. • Attention from multinationals boosted costs in Lagos, Nigeria, 13 percent last year to $5,900 per work station.