Two markets in Beijing are listed in the top 5 most expensive markets; Hong Kong-Central remains world’s most expensive office market
June 25 2013, Beijing — The dominance of Asia in the world’s most expensive office locations continued, as Hong Kong-Central remained the highest priced market and four other Asian markets populated the top five. Finance Street, Beijing and Jianguomen-CBD, Beijing ranked third and fourth on the Q1 2013 list, according to CBRE Global Research and Consulting’s semi-annual Prime Office Occupancy Costs survey.
Hong Kong–Central’s overall occupancy costs of US$235.23 per sq. ft. per year topped the ―most expensive‖ list for the third consecutive time. London’s West End followed with total occupancy costs of US$222.58. Beijing’s Finance Street, Beijing’s Jianguomen CBD and New Delhi’s Connaught Place CBD rounded out the top five.
Other Asia-Pacific markets in the top ten include Hong Kong-West Kowloon (6th) and Tokyo (Marunouchi/Otemachi) (8th). New York’s Midtown Manhattan (10th) returned to the top ten markets for the first time since early 2012, joined by Moscow (7th) and London’s City (9th).
Globally, occupancy costs rose by a scant 1.4% on a year-over-year basis as modest growth in the Americas and Asia Pacific was partly offset by a slight decrease in recessionary Europe. However, the modest global average uptick masked significant increases in markets like Jakarta, Indonesia and suburban Houston, Texas, which posted increases of 38.9% and 21.2%, respectively.
While the pace of occupancy cost growth globally has slowed, limited supply of prime space in key core business centers has fueled continuous upward movement of occupancy costs,‖ said Dr. Raymond Torto, CBRE’s Global Chief Economist. ―The most expensive office markets often attract the regional headquarters of large multinational firms that require a prime location in a prestigious building with access to major global and regional transit routes.‖
Nick Jones, Executive Director, Office & Agency Services, CBRE China, said:" The presence of no less than 8 separate Chinese real estate markets in the global list of 50 is testament to the rapidly rising importance of China as a destination for both foreign and international occupiers of office space. The relative position of Beijing and Shanghai compared to other major cities across the world is also clear indication of the leading position that these two cities hold within mainland China, being the city locations of choice for the establishment of the national headquarters of many domestic and foreign companies."
CBRE tracks occupancy costs for prime office space in 127 markets around the globe. Of the top 50 ―most expensive‖ markets, 21 are in Asia-Pacific, 18 are in EMEA and 11 in the Americas.
Asia-Pacific had 21 markets ranked in the top 50 most expensive, including six of the top ten— Hong Kong Central, Beijing’s Finance Street, Beijing’s Jianguomen CBD, New Delhi’s Connaught Place CBD, Hong Kong-West Kowloon and Tokyo (Marunouchi/Otemachi).
Hong Kong Central’s position as the most expensive office market continues to be bolstered by its status as a leading global financial center. Although financial institutions have become more cost sensitive, with some considering relocating to less expensive space outside the CBD, high-quality and premium space is still sought after, especially by mainland Chinese firms which are increasingly setting up their offices in Hong Kong (Central) in prestigious buildings.
Beijing had two submarkets in the top 10. The rise in Beijing’s office rents reflects the rapid growth of the Chinese economy as well as constrained supply levels in the Chinese capital. Growth in Beijing Finance Street (US$194.07 per sq. ft. per year), ranked third on the Q1 2013 list, has been driven by demand from domestic financial companies, which have not been as vulnerable to external economic shocks as multinational corporations and can afford the submarket’s relatively high rents. With no new supply of prime office space expected in this submarket for 3-4 years, according to CBRE, rents will remain at elevated levels.
Beijing Jianguomen-CBD (US$187.06 per sq. ft. per year), ranked fourth on the Q1 2013 list, is home to a cluster of multinational corporations that require prime office space and a Beijing presence. Healthy demand, coupled with limited development—no new prime office space has come online since 2011—has sustained the area’s high rents. With limited construction pipelines for 2013 and 2014, this trend will likely continue.
Asia also had the markets with both the sharpest annual increase and decrease among the markets tracked. Jakarta’s 38.9% increase was driven by a substantial recovery in domestic demand in the wake of Indonesian sovereign debt’s return to investment-grade status, which energized leveraged investment initiatives and drove up demand for prime office space across the capital. Singapore experienced the largest annual decrease worldwide (-16.3%) due, in part, to increases in both new supply and the availability of lower-priced secondary space. The bulk of the rental decline occurred in early 2012, with only minimal\ rental corrections in the second half of 2012 and in Q1 2013.
The most expensive market in the global ranking from the Pacific Region was Sydney (US$119.23 per sq. ft.), which came in at 13th.
North America was again led by New York’s Midtown, which posted a prime office occupancy cost of US$120.65 per sq. ft., reflecting a 5.6% year-over-year increase. The New York Midtown market jumped to 10th globally, marking its first return to the top ten most expensive office locations since the beginning of 2012, reflecting continued demand for premium space by top tier investment and legal firms.
Energy markets, such as Denver, Calgary and Houston, reported the strongest annual prime office occupancy gains, with Houston’s Suburban and Downtown office markets witnessing significant increases in year-over-year occupancy costs, of 21.2% and 14.9% respectively. High-tech markets also saw rising costs, including San Francisco (Downtown), Boston (Downtown and Suburban), and Seattle (Downtown and Bellevue CBD). Prime costs in Boston’s Downtown surged, rising 15.4%. Across most of the fast-growing energy and high-tech markets, new supply is limited given the requirement of a high level of pre-leasing before any new construction can be financed.
In Latin America, São Paulo remains the most expensive market, posting an office occupancy cost of US$118.86 per sq. ft., and ranks as the 14th most expensive market globally.
Europe Middle East & Africa (EMEA)
In addition to London’s West End ranking as the world’s second-most expensive market, other markets from the region in the list’s top ten are Moscow (occupancy cost of US$165.05 per sq. ft.) and London’s City (US$132.94 per sq. ft.).
Struggling economic conditions and cost-containment initiatives led to lower demand for office space and restrained pricing across many Southern European markets including Madrid, Milan, Rome, Athens and a number of smaller markets such as Valencia and Oporto.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.