Tokyo is Priciest Market as Climate Favors Office Tenants Worldwide: CBRE

Tenants have the edge in most of the world’s major office markets, concludes an analysis by CB Richard Ellis Inc. Class A rents are sliding dramatically and vacancy is ticking upwards in nearly every region, according to the study published last week. Office occupancy costs in 173 global markets declined 2.8 percent in the 12 months ending March 31. That represents a dramatic change in direction from the 12-month period ending September 2008, during which costs grew 8 percent. In the United States, vacancy has increased 130 basis points during the past two quarters. In the 15 European Union countries, vacancy rose 3.4 percent in the first quarter and 4.1 percent year-over-year. Broad cost-cutting efforts among tenants led to increased vacancy in 15 of the 17 Asian Pacific markets during the first quarter. The findings emerged last week in a report that also features an update on the most expensive office markets. Tokyo’s Inner Central District took first place at $183.62 per square foot, edging out London’s West End by $11 per square foot, according to CB Richard Ellis. Other top 10 markets include Moscow, Hong Kong’s central business district, Tokyo’s Outer Central District, Mumbai, Dubai, Paris, the City of London and Dublin. Midtown Manhattan, North America’s most expensive office market, ranked 21st overall at $68.63 per square foot. Other North American markets among the top 50 most were Calgary (39), Downtown Manhattan (44), suburban Los Angeles (45), Toronto (46), and Washington, D.C. (47). Even the costliest locations sustained big price drops during the past year. In 34 of the top 50, occupancy costs have dropped by double digits since the first quarter of 2008. Fourteen of those 50 recorded cost decreases of at least 20 percent. The global capital markets slump is hitting financial centers particularly hard. The five global markets experiencing the most drastic year-over-year drops in occupancy costs are Singapore (34.4 percent), Midtown Manhattan (31.5 percent), Hong Kong’s Central Business District (29.9 percent), Suburban Boston (29.7 percent) and Hong Kong Citywide (28.5 percent). Major Latin American markets are so far the least affected by the global recession. “For the most part, Latin America is still experiencing low vacancy rates and has benefited from continued stable local demand from real estate,” the report states. “It is expected that vacancy rates will continue to inch up slowly, but an implosion in real estate is not likely.” Despite a modest increase in vacancy, Mexico City’s Class A market remains tight, ticking up to 5.9 percent during the first quarter. During the next four years, more than 800,000 square feet of Class A space is expected to come on line, including about 190,000 square feet in 2009. That addition of new product will gradually exert downward pressure on costs in Mexico City. In several other Latin American markets, office vacancy remains miniscule; Lima, Peru and Santiago, Chile, both have rates below 2 percent.