Survey: London, Moscow Still Most Expensive Office Markets, Rents Dropping Across North America

London and Moscow remain the worlds’ two most expensive places to rent office space, according to a survey by CB Richard Ellis Inc. The just-released report tracked 172 markets worldwide for the 12 months ending Sept. 30. The report found that the average growth rate for office occupancy costs was 8 percent. And Abu Dhabi emerged with far and above the fastest growing rate of occupancy costs, showing an increase of 94.6 percent. Dr. Raymond Torto, CBRE global chief economist, told CPN, “While Abu Dhabi, Dubai and Ho Chi Minh City are among the fastest growing markets, there are a couple of things to keep in perspective. They’re starting with lower numbers, and with farther to go, the percentage change looks larger. Also, in overseas and emerging markets, we see a lot of demand for Class A office space, and not a lot of it to go around. What happens is that people start to establish a footprint. As United States and worldwide investors and businesses, they are looking for Class A office space. This increases the demand which against a very limited supply makes the occupancy costs rise. It will take time for the construction to catch up. In the short term, we see the quickly rising prices.” Some additional highlights of the study: Hong Kong joined the top three most expensive cities in the world, with occupancy costs having risen to $281.59 per square foot. Hong Kong’s CBD, Tokyo’s Inner Central District and now Mumbai’s Nariman Point are now the three next most expensive markets in the world. But what is surprising is that this has even pushed a few cities, like New York, down a few notches. From tenants’ point of view, rents have dropped somewhat dramatically in North America. And of course, the tragedy that has occurred in Mumbai may cause changes there. Five North American cities still show up in the worlds top 50 most expensive office markets: Midtown Manhattan is 15th at $98.08 per square foot; Calgary is 38th at $66.58; suburban Los Angeles is 41st at $63.58; Toronto made it to 43rd at $61.54 and downtown New York City is 48th at $59.16 per square foot. And of the nine North American markets that are in the top 50 fastest growing (which is down from the last report when there were 15 that made it to that group) occupancy cost growth rates averaged 14.5 percent, which is the slowest growth rate of all the regions that were covered in the survey. Noted Dr. Torto, “But if you look at it by major regions, over the last six months they have dropped about 3 percent. So, in the first 6 of the last 12 months we had a big increase that basically stopped and went the other way in the last six.” Torto added, “You look back 12 months and things were pretty good. You kind of forget that, given the last 45 days. It is surprising to remember that things were pretty good. What strikes me as part of this report that may go unseen…is that looking forward, from an occupier’s point of view, and particularly in North America, rents have been dropping dramatically. In EAME terms, they have dropped in double digits. Rent has been flat or going up in Hong Kong, as measured in dollars as opposed to yen the local currency, and so that means, for an occupier who is going global, say, for a company like a Cisco or an IBM, they can be bringing large profits back home. Of course, it cuts the other way for a company like a General Motors, a company pricing cars in Europe, which makes it much more expensive to sell their cars in Europe.”