Hong Kong & Tokyo Overtake London As World’s Most Expensive Office Locations
24 Feb, 2009, London
London has lost its status as the world’s most expensive office location for the first time in nine years. According to the new Office Space Across the World 2009 report from global real estate advisor Cushman & Wakefield, Hong Kong and Tokyo are now the world’s two most expensive locations relegating London to third place. The cost of occupying a prime square metre of office per year in Hong Kong now stands at €1,743.
Although rents in Hong Kong actually fell 4 per cent in 2008, the much larger 23 per cent fall in London’s West End pushed occupancy costs down further to €1,403 per sq m per annum. The cost of space in Tokyo now stands at €1,649 per sq m per annum, a fall of 19 per cent in 2008.
Office Space Across the World 2009 compares office occupancy costs in 202 key locations in 57 countries around the world. Of these 202 locations, 58 per cent showed rental growth in 2008, 26 per cent saw stable rents and 16 per cent showed a rental fall (compared with only 1 per cent in 2007). Office rents globally rose on average by 3 per cent, significantly below the 14 per cent achieved in 2007 and the lowest growth rate since 2004.
South America was the best performing region with rental growth averaging 12 per cent for the year. Western Europe was the poorest performing region with average rental growth of only 1 per cent.
The impact of the global economic downturn has been felt in all markets although some were better placed to withstand declining occupier demand for space. The expansion of financial institutions, particularly the hedge funds, have driven up rents in London’s most prestigious West End market for the last few years but it has now felt the full impact of the credit and banking crisis. The fall in rents and weak UK currency, however, means that for overseas companies, London is now more affordable than it has been in years.
Dublin has fallen out of the top ten for the first time in three years. It is down to 15th position from ninth with annual occupancy costs standing at €620 per sq m; this includes a decline in rents of 13 per cent. Dubai, however, has risen from eighth to fifth place with rents increasing by 7 per cent. Damascus in Syria is a new entry for 2009 at number eight.
John Siu, general manager, Cushman & Wakefield Hong Kong, said: "Although rents in Hong Kong fell, the drop was not as severe as witnessed in other leading cities such as Tokyo or London. This is primarily due to Hong Kong’s comparatively low vacancy rates. Many banking and finance occupiers have not yet reached the end of their lease, so are not currently looking to either relocate or downsize. There is also a limited supply of new stock coming on to the market in the immediate future. However, there seems little doubt that rents will continue to fall over 2009, perhaps at a faster rate then before."
Richard Middleton, executive managing director, Cushman & Wakefield Greater China, said: "The success of the China market is due, mainly, to strong demand over the first half of 2008. This slowed quickly in the second half as development plans were delayed; however, many have since resumed construction.
"Recent reports show a re-emergence of tenant demand, particularly in the pharmaceutical, education and legal sectors, as occupiers reassess their space requirements. As rents for prime office space in Shanghai and Beijing are off by up to 25 per cent, companies are looking at renegotiating their leases or relocating to take advantage of cost saving opportunities offered in a 5 year lease, particularly to focus on savings in 2009."
James Young, head of Central London offices, Cushman & Wakefield, said: "Whilst 2008 has not been a great year for London’s commercial property market, the fall in rental values and weakening of sterling have meant that the city has become better value and more competitive in the global rankings. Although it is difficult to remain objective amongst the maelstrom of bad news that we see on a daily basis, we should not forget that London remains the number one location in Europe that international businesses choose to locate in. Its increasing cost competitiveness will only help this status."