EN | FR
London is the world's most expensive location for office space
15 Feb, 2006, London
How much does it cost to occupy a square metre of office space in the Mayfair district of London? Nearly Euro1,640 a year, according to this year's edition of Office Space Across the World, published by global real estate consultancy Cushman & Wakefield.
In the ranking of the world's most expensive office locations, Hong Kong is in second place, at Euro1,200. The Chinese city overtakes Tokyo, as well as narrowing the gap between the most expensive and second most expensive locations to just over Euro400 compared with Euro€600 in last year's ranking.
"The cost of occupying office space in the world's top locations went up by 4.3 per cent last year; a healthy performance compared with the 1.2 per cent growth in last year's ranking and above the global economic growth rate of 3.3 per cent," says Elaine Rossall, Head of Business Space Research & Consultancy, Cushman & Wakefield Healey & Baker, the European division of Cushman & Wakefield.
Office Space Across the World compares office occupancy costs in 215 key locations based in 54 countries around the world. Of those locations, 51 per cent recorded positive annual growth, 32 per cent were stable and only 17 per cent experienced a decline.
The best-performing region in 2005 was Asia Pacific, with rental growth of 15.6 per cent. "Growth in Asia Pacific has been underpinned by the continued strength of the service sector in the region," says Elaine. Asia Pacific is followed by Africa and the Middle East with 13.2 per cent, Latin America and Mexico with 7 per cent, US & Canada with 5.8 per cent and finally Europe with 1.5 per cent. "The European locations became more competitive last year having generally moved down the ranking. In many cases this was not because of any falls in rents, but because of the rise in the ranking of the non-European locations, especially those favoured by the stronger dollar rate."
Looking at individual locations, several Asian cities have moved up the ranking, including Mumbai (up seven places), while the Argentine capital Buenos Aires went up ten places and the Brazilian city of São Paulo five places, making it the third most expensive city in the Americas after New York and Washington DC.
Hong Kong leads ranking of rental rises
Hong Kong not only performs well in the overall ranking of occupancy costs, moving up to second place, but also in the ranking of increases in rent, the biggest part of occupancy costs. In local currency terms, rents in Hong Kong rose 75 per cent last year.
James Fisher, Managing Director of Cushman & Wakefield's Hong Kong office explains: "The Hong Kong office market has been on the upswing for more than two years. This strong performance is largely attributed to buoyant demand from companies expanding and upgrading their office requirements, particularly in the banking and finance sector. As a result of these strong rental increases, some companies located in the CBD will have to more than double their occupancy costs when they renew their leases in 2006."
Looking ahead, James says: "While positive business sentiment and rising wages are clear indications that many companies are doing well and growing, we expect expansion activity to be much more moderate for the CBD in 2006, constrained largely by a lack of new supply entering the district. Rents are therefore forecast to grow further, albeit at a slower rate than in 2005."
Rents for top-quality offices in Buenos Aires rose 46 per cent last year because of the lack of new office space coming onto the market over the past five years, says Florencia Aguilar, Director of Research Services at C&W's Buenos Aires office. "At the same time, companies are expanding and new companies entering the market, given Argentina's strong economic growth and growing attraction as an outsourcing destination because of low labour costs, a good quality of life and the high quality of its professionals."
Most cities in India recorded robust rental growth, in particular Mumbai, helped by a strong demand from financial and services companies. Looking forward, Sanjay Verma, Managing Director, Cushman & Wakefield, India adds: "Rising prices in India's first-tier cities is likely to encourage more companies to consider second-tier cities in 2006. Some second-tier cities, such as Pune and Hyderabad, have already witnessed an increase in demand from IT and back-office services companies, attracted by the availability of a qualified workforce and lower occupancy costs."
The Spanish cities saw some of the strongest growth, buoyed by one of the fastest-growing economies in Europe. The highest rental increases, at 33 per cent, were in the out-of-town market of Barcelona. "Several new schemes have come onto the market in the outskirts of Barcelona with high-quality specifications capable of attracting blue-chip companies previously located in prime areas of the city," says Oriol Barrachina, Head of Office Agency in C&W/H&B's Barcelona office.
Looking ahead, Elaine says: "We are anticipating further, similar rental growths in the world's top office locations for this year, and in particular in the fast-growing Asia Pacific region. This comes at a time when demand from occupiers will continue to expand, pushing down the available supply of good-quality office space."
Notes to Editors:
1. Office Space Across the World is an annual publication produced by Cushman & Wakefield. This year’s edition uses data collected by the Firm’s offices around the world at the end of December 2005. The ranking of the world’s most expensive office locations is compiled from the location with the most expensive occupancy cost in each country monitored. Rents, which form the largest part of occupancy costs, are calculated on a net internal basis.
2. Founded in 1917, Cushman & Wakefield is the world's largest privately owned commercial real estate services firm with more than 11,000 professionals in 189 offices in 57 countries. In Europe, Middle East and Africa the firm's operations extend to more than 1,500 professionals in 33 countries. The firm delivers integrated solutions by actively advising, implementing and managing on behalf of landlords, tenants, and investors through every stage of the real estate process. These solutions include helping clients to buy, sell, finance, lease, and manage assets. Cushman & Wakefield also provides valuation advice, strategic planning and research, portfolio analysis, and site selection and space location assistance, among many other advisory services. To find out more about Cushman & Wakefield, visit www.cushmanwakefield.com