Tokyo is the world's most expensive office market

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New research has found that Tokyo is the most expensive place in the world to have office space and Perth has the second fastest growing occupancy costs, according to the latest Global Office Occupancy Costs survey by CB Richard Ellis.

Tokyo is the world's most expensive office market

The CBRE Global Research and Consulting survey tracks the world’s most expensive office markets as well as those with the fastest growing occupancy costs. The bi-annual survey covers 173 markets around the world.

The latest report reveals that Tokyo’s Inner Central District has supplanted London’s West End as the world’s most expensive office market. Marseilles in France had the fastest growing occupancy costs over the period (+30.4%) followed by Perth (+20.2%).

However, CBRE Executive Director, Global Research and Consulting, Kevin Stanley, said all of the growth in Perth had occurred in 2008. While Perth was the most expensive market in this region - and 30th in the international rankings - office rents were now falling and could decrease by 50% in this cycle, having grown by around 120% in the last cycle.

Overall, the report highlights that financial centres have been the most significantly affected by declining occupier demand and, as one would expect, registered the most material decreases in office rents.  In many cases, major global office markets have seen occupancy costs fall by 20% or more over the last 12 months.  Across the 173 markets as a whole, office occupancy costs fell 2.8% over the 12 month period ending March 31, 2009 (on an un-weighted average basis) compared with an increase of 8.0% in the 12 month period ending September 30, 2008. Singapore had the largest year over year decrease in occupancy costs with a drop of 34%.

Some markets did record increases in costs over the last 12 months but these markets—such as Charlotte (U.S.), Marseille (France) and Perth (Australia)—are very much the exception rather than the rule.  Generally, these increases are either due to exceptional local market conditions, such as the completion of a top quality new building in a market where none was available previously, or simply that occupancy costs remain above the level of a year ago, despite the fact they are now falling.  Such situations illustrate the uneven way in which the economic downturn is affecting different markets around the globe, according to the report.

“The great global recession has clearly taken its toll on the world’s office markets, particularly those with significant concentrations of financial industry employers,” said Dr. Raymond Torto, CBRE’s Global Chief Economist. ”The most expensive office markets, as measured in US dollars, are considerably less expensive than a year ago and occupiers are now in a strong position to procure prime space at attractive costs. For instance, a year ago office space in London’s West end was nearly $300 per sq. ft., while today that space goes for $172 per sq. ft.”

Pacific 

Mr Stanley said the survey highlighted that while rents were starting to fall in most markets around the world, the Pacific Region had been relatively late to join the trend.

“This provides some hope the “down-time” may be shorter here than elsewhere, as a globalised economic upswing is forecast from 2010,” Mr Stanley said.

The report also reveals that the region’s smaller office markets have moved up the rankings of city’s with the fastest growing occupancy costs, while the bigger markets have suffered earlier and recorded larger rent falls so far in this cycle. Smaller markets to climb the rankings include Adelaide (+6.7%), Christchurch (+11.4%) and Wellington (+3.9%)

“The smaller office markets rarely have fast growing rents and don’t tend to fall as far either,” Mr Stanley said.

“There are a number of reasons for this; tenants may be less exposed to global influences, reducing the risk of the creation of sub-lease vacancy, plus there is less chance of significant over-building.”

Even the largest falls recorded in the Pacific Region have so far been well below those recorded elsewhere in the world. While Brisbane occupancy costs fell by 19.8% over the period, occupancy costs fell by 34.3% in Singapore and by 31.5% in New York Midtown.

In regard to the most expensive cities, Mr Stanley said occupancy costs in the Pacific Region had always been low by global standards and were now falling relative to the rest of the world. With the exception of Christchurch, all Australian and New Zealand markets fell in the rankings of the world’s most expensive markets, with Perth being the only city to make the Top 50 list (coming in at 30th in the rankings).

Sydney fell out of the Top 50 list, dropping from 46th position to 64th spot. Brisbane was the next highest city in the rankings at 81, with Christchurch maintaining its 168th position on the list - just five from last place.

Asia

Tokyo (Inner Central) was the world’s most expensive market with an occupancy cost of $183 per sq. ft. Hong Kong (CBD) was the fourth most expensive global market with occupancy costs of $150 per sq. ft. Tokyo (Outer Central) and Mumbai were the other two Asian markets in the top 10 most expensive cities roster.

Singapore, while experiencing the largest drop in occupancy costs, was not alone among Asia-Pacific financial centres in seeing a sharp decline. Hong Kong, Tokyo and Mumbai posted large drops in office occupancy costs.

Europe

London’s West End was the world’s second most expensive office market at $172 per sq. ft. and Moscow was a close third with occupancy costs at $170 per sq. ft. Dubai, Paris, the City of London and Dublin all were in the top ten most expensive markets.  

Twelve cities in the region posted doubled digit declines in office cost. Moscow had the sharpest decline in the region followed closely by Oslo (Norway), while occupancy costs in London’s West End, previously the most expensive market in our report, fell 20%. In addition to Marseille, Durban (South Africa) was among the world’s top five markets with occupancy cost growing by 18% during the past 12 months.

Americas

The most expensive office location in the Americas is still New York’s Midtown with occupancy costs of $68 per sq. ft. However, that market’s occupancy costs declined 32%--the second steepest decline in the global survey. While occupancy costs in New York’s Midtown are high for North America, it ranked just 21st globally. Boston’s suburban market posted a decrease of nearly 30%, putting that market in fourth position in the top decreases chart in the report.

São Paulo (Brazil) posted the Latin American region’s highest occupancy costs at $57 per sq. ft. and is ranked 33rd globally.  Latin America has held up better than the rest of the world with only three cities posting small negative growth rates, the worst being Mexico City with a 5.6 percent decrease.  Nine markets in North America posted double digit declines.

Top 10 most expensive markets

 In US$ per sq. ft. per annum  US$/SF/annum
 1. Tokyo, (Inner Central)  183.62
 2. London (West End)  172.62
 3. Moscow  170.24
 4. Hong Kong (CBD)  150.42
 5. Tokyo (Outer Central  149.58
 6. Mumbai  131.04
 7. Dubai  122.52
 8. Paris  114.89
 9. London (City)  103.50
 10. Dublin    93.56

Top five decreases

   % change
 1. Singapore  -34.4
 2. New York  (Midtown)  -31.5
 3. Hong Kong (CBD)  -29.9
 4. Boston (suburban)  -29.7
 5. Hong Kong (Citywide)  -28.5

Top five increases

   % change
 1. Marseille  30.4
 2. Perth  22.2
 3. Santo Domingo  21.7
 4. Durban  18.2
 5. Charlotte  14.2

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