Foreign Exchange

London has lost its status as the world’s most expensive office location for the first time in nine years.
 
Hong Kong and Tokyo are now the world’s two most expensive locations, relegating London to third place, according to the "Office Space across the World 2009" report from global real estate advisor Cushman & Wakefield. The cost of occupying a prime square meter of office per year in Hong Kong now stands at €1,743.

Although rents in Hong Kong actually fell 4 percent in 2008, rents in London's West End fell 23 percent, pushing occupancy costs down to €1,403 per square meters per year. The cost of space in Tokyo now stands at €1,649 per square meters per year, a fall of 19 percent in 2008.

"Although rents in Hong Kong fell, the drop was not as severe as witnessed in other leading cities such as Tokyo or London," says John Siu, general manager of Cushman & Wakefield Hong Kong. "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."

The "Office Space across the World 2009" report compares office occupancy costs in 202 key locations in 57 countries around the world. Of these 202 locations, 58 percent showed rental growth in 2008, 26 percent saw stable rents and 16 percent showed a rental fall (compared with only 1 per cent in 2007). Office rents globally rose on average by 3 percent, significantly below the 14 percent achieved in 2007 and the lowest growth rate since 2004.

South America was the best performing region with rental growth averaging 12 percent for the year, while Western Europe was the poorest performing region with average rental growth of only 1 percent.

Although the impact of the global economic downturn has been felt in all markets, some were better placed to withstand declining occupier demand for space, according to Cushman & Wakefield. The expansion of financial institutions, particularly hedge funds, drove up rents in London’s most prestigious West End market over the last few years, but it is now feeling 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.

"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," says James Young, head of Central London offices for Cushman & Wakefield. "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."

Dublin fell 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 square meters, representing a 13 percent decline in rents. In contrast, Dubai rose from eighth to fifth place, with rents increasing by 7 percent. Damascus, Syria, is a new entry for 2009 at number eight.

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