London Loses Title of World’s Most Expensive Office Market

After nine years at the very top of the list of most expensive office markets in the world, London has conceded its spot to Hong Kong. As per Cushman & Wakefield Inc.’s new Office Space Across the World 2009 report, the credit crunch and the banking crisis are the factors that caused the city to fall from its perch, while relatively low vacancies pushed Hong Kong to the peak.”One of the interesting factors that came out of the study was the uniform contraction in demand from occupiers over the last quarter of 2008, and the rapid synchronization of trends across all regions as the economic slowdown took hold,” Elaine Rossall of C&W Research EMEA, told CPN. At the core of the nosedive in London’s office market rates is the city’s West End submarket, where rental rates plummeted 23 percent in 2008. London was not alone, as other metropolitan markets took some punches, too. Given the global reach of the economic downturn, 16 percent of the 202 cities spanning 57 countries surveyed in the report experienced a decline in office rental prices, compared to a mere 1 percent in 2007. Even Hong Kong, which made its way up to first place from second place with average rents of €1,743 per square-meter, saw a 4 percent drop in rates. Tokyo climbed the ladder from number three to number two, despite a 19 percent decline in average office rates to €1,649 square meters.  There were a few surprises on the roster of the 10 priciest office markets in 2008. Dublin tumbled from the 10th spot all the way down to the 15th, marking the city’s first absence from the list in three years. Dubai, jumped from number eight to number five, and Damascus made its first appearance on the top 10 list at number eight. Rents increased an average 4 percent in the U.S., but Midtown in New York City was the only U.S. market to find a place in the upper echelon. With an average rental rate of € 832 per square-meter, or approximately $80 per square-foot, the submarket rounded out the list at number 10, exactly where it was in 2007.   The news is all relative; while the worldwide average rental rate actually rose 3 percent last year–buoyed by South America’s 12 percent swell in pricing–the increase paled in comparison to the 14 percent jump in 2007.  There is some good news, however–for lessees. London is still the most highly coveted office location in Europe for international businesses, so the more competitive rates will be beneficial to those seeking space. Additionally, in other markets around the world with declining prices and increasing levels of supply, many lessees will be able to renegotiate expiring lease agreements at more reasonable rates.  Recovery is not within reach, but it is within sight. “We anticipate that rents will fall during 2009, virtually without exception but the fact that there will be a dearth of new supply coming on-stream in late 2010/2011 should help support recovery over this period,” Rossall said. Asia Pacific and South America are, in all probability, better placed for earlier recovery as economic forecasts are more positive and the supply levels of good quality space are relatively lower. ”