The office towers of New York City may be the priciest in the nation, but they’re a downright bargain when compared with rental space in London, now ranked as the most expensive market in the world.

Even as rents and occupancy declined in many major markets this year, London’s West End bumped Tokyo from the top spot as the most expensive office rental market per square foot, according to a new ranking by Los Angeles-based commercial real estate services firm CB Richard Ellis (CBRE).

Office rents in London’s West End rose from $172.62 per sq. ft. last year to $182.94 per sq. ft. in 2010.

In 2009, Tokyo ranked as the No. 1 most expensive office market in the world, at $183.62 per sq. ft., according to CBRE. But this year, the Japanese capital came in third, below London and Hong Kong, at $143.99 per sq. ft.

Meanwhile, Midtown New York City moved down the expense ladder, from No. 21 in rental cost last year to No. 26 in 2010. The rental cost of office space in midtown Manhattan dropped from $68.63 per sq. ft. annually in 2009 to $64.51 per sq. ft.

“Currency fluctuations play a big role with regard to where markets rank in the top 10 for office costs,” says Dr. Raymond Torto, CBRE’s global chief economist. ”However, the ‘most expensive club’ still includes the usual names—London, Hong Kong and Tokyo.”

The commercial real estate market lags the economy, notes Torto, and the new CBRE survey still shows widespread falling rents. Overall, North American office markets recorded a year-over-year decline of 3.3%, as rental prices fell in 51 of 77 markets.

But there are small indications of improvement. “On a quarter-over-quarter basis, rental data in these markets is generally starting to show a bottoming, and in some locations, such as London, even an uptick,” says Torto.

Occupancy costs declined globally by 4.6% for the 12 months ending March 31, 2010. Measured separately, larger office markets registered a collective occupancy drop of 6.4%.

Besides New York, the only other U.S. city to make the top 50 list of most expensive office markets this year was Washington, D.C., which ranked 45th at $51.75 per sq. ft., down slightly from $51.77 in 2009. Los Angeles, which ranked 45th last year, was not among the top 50 most expensive cities this year.

Globally, the country with the greatest price increase was Brazil. Rents in Rio de Janeiro rose by 17.7%, while costs in Sao Paulo rose 15.9% over 12 months. Tel Aviv recorded the third-highest increase in office rents at 13.8%.

Meanwhile, the greatest decrease occurred in Singapore, 36.2%, followed by Ho Chi Minh City, Vietnam, where rents declined 30.9%.

U.S. vacancies climb

Vacancy rates in the U.S are still in the process of stabilizing, according to New York-based research firm Reis. Nationally, office vacancies rose 30 basis points in the first quarter. The U.S. national office vacancy rate of 17.3% was the highest in 16 years, according to Reis.

“There is reason to believe that things are getting better for office properties,” says Victor Calanog, director of research at Reis. He points to a drop in the number of markets that registered declines in effective rents. In the first quarter, 53 of 79 markets showed declines in effective rents compared with 70 of 79 in the previous quarter.

Nationally, effective rents in the office sector declined 0.8% in the first quarter compared with a decline of 1.9% in the fourth quarter.

Although there are signs of improvement, Calanog does not anticipate that recovery for the office market will arrive quickly. “Reis does not expect office vacancies to begin declining until 2011.”