London retains its title as the most expensive office location in the world

15 Feb, 2008, Paris

- Rents, a large component of office occupancy costs, rise on average 40% in the world’s top ten office locations.
- Oslo is the biggest riser in the global ranking of office occupancy costs, up 14 places to 11th, while Singapore goes up ten places to 7th position.
- Istanbul sees the world’s highest rental growth in local currency terms, with rents up 95% in the Levent district.

The world’s top ten most expensive office locations saw rents, a large component of occupancy costs, increase by an average 40 per cent last year, according to Office Space Across the World 2008, a global report by real estate services firm Cushman & Wakefield.

In this year’s ranking, London retains its title as having the most expensive office occupancy costs in the world, with one square metre of prime space in London’s West End at €2,277 a year, or US$312 per square foot, with rents up 30% last year in local currency terms. In second place is Hong Kong, at €1,745, where rents were up 40% last year in local currency terms.

Office Space Across the World 2008 compares office occupancy costs in 203 key locations in a record 58 countries around the world, with new entries in the global ranking including Kyiv in Ukraine (16^th) and Vietnam’s Ho Chi Minh City (17^th place).

Of these 203 locations, 79% showed rental growth last year, 20% stable rents and only one per cent showed a rental fall (compared with 6 per cent the previous year). Overall globally, rents grew by 14% in 2007, compared with 10% in 2006.

Elaine Rossall, Head of Business Space Research & Consultancy for Cushman & Wakefield in EMEA, says: “Last year saw the fastest level of growth in office occupancy costs in many of the world’s top locations since the turn of the property cycle in 2001, with the strongest demand coming from the financial sector. Behind this growth is a shortage of top-quality product as developers remain relatively cautious, especially compared with the previous peak years of 2001 and 2002.”

Looking forward, Elaine says: “We are unlikely to know the full effects of the current credit squeeze on the world’s main office locations until further into 2008. In the meantime, we foresee the market for the right product in the right location remaining robust, especially in the more buoyant markets of Asia Pacific, although expectations are that last year’s strong rental growth will ease this year.”

London leads the ranking

Regarding the No. 1 position of London’s West End, Guy Taylor, Head of West End Office Agency in the London office of Cushman & Wakefield, comments: “Around 50% of office requirements in Mayfair/St James came last year from the financial sector, attracted by the top-quality space on offer and the unbeatable location. There still remains a healthy level of such requirements, although it is clear that the past levels of strong rental growth have slowed.”

This year’s risers

In the top ten of the global ranking, the biggest risers include Singapore, which goes up ten places to join the top ten at 7th position. Prime office rents rose 78% in Singpore last year in local currency, and, together with strong performances in India and Vietnam, among other locations in the region, helped Asia Pacific to achieve the strongest regional growth, with rents rising 25% over the course of 2007.

Arsh Chaudhry, Executive Managing Director of Cushman & Wakefield in South-East Asia, says: “Rental growth in Singapore was led by strong demand from the banking and services sectors coupled with very limited supply of quality office space. The demand from corporates across most industry sectors is still strong for 2008 whereas supply will remain constrained until 2010. We shall therefore see a continuation of the upward trends in rents, albeit at a slower pace compared with 2007.”

Meanwhile, Moscow rises two places to join the top five ranking for the first time, with prime occupancy costs now above those of Paris, which in addition has been overtaken by Mumbai. Elaine Rossall, Head of Business Space Research & Consultancy for C&W in EMEA, says: “This change in the ranking is more about the rise of Moscow and Mumbai given that the rental level in Paris’ CBD went up by 12% last year.”

The strongest riser in the global ranking is Oslo, which goes up 14 places to 11th position. Helge Mork, Chief Executive Officer of Mork & Partners, the Associate Partner of C&W in Norway, says: “Strong oil prices and low interest rates have helped fuel an economic boom in oil-exporting Norway over recent years. This has fed through in higher office rents in the prime district of Oslo as demand outstrips supply. Going forward, however, we expect the growth in prime office rents to increase at a much slower pace as higher interest rates begin to feed through.”

The biggest increases in rent in local currency in all locations

Turkey accounts for the top three locations for the highest annual growth in office rents in all 203 locations monitored, with Istanbul’s Levent district, Turkey’s most expensive location, in the No. 1 position.

Rahsan Cebe, Managing Director of Cushman & Wakefield’s Alliance Partner in Turkey, P&D Real Estate Consultants, comments: “We are seeing an acute shortage of quality office space across Turkey’s main business locations which is unlikely to be reduced over the next two or three years. Demand, meanwhile, is being spurred by international as well as local companies as they expand in this relatively untapped market, with its 70 million-strong population and fast-growing economy.”

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