London's West End is the world's most expensive office market once again after regaining its crown from Hong Kong's Central Business District (CBD), according to research published today in Cushman & Wakefield's 'Office Space Across the World 2013'.
The report highlights the scarcity of quality space in London which has increased competition and consequently inflated office rents by 2% in the West End to make them the most expensive in the world.
"As a truly global city, London's appeal continues unabated. In conjunction with a scarcity of good quality stock prime rents have increased over the year," said Digby Flower, Cushman & Wakefield's Head of London Markets. He added: "Equally importantly we expect rents to grow further as we get into recovery mode."
Hong Kong's CBD drops down into second place, while the Zona Sul area of Rio de Janeiro climbs from 8th last year and powers into the top three most expensive office locations in the world as a result of a 43% rental increase compared to 2011.
Globally, the office market witnessed prime rents rise by 3% in 2012, but this was largely driven by the impressive levels of growth in South America, particularly Brazil and Colombia. However, although prime rents expanded on a global basis, many markets suffered under continuing economic uncertainty and this led to increased occupier caution. Cushman & Wakefield expects the trend of companies proactively trying to reduce office occupancy costs to continue as the overall global economic outlook remains unsure.
"Safe havens or gateway cities such as London, Hong Kong and New York continue to command high rents despite uncertain economic conditions, as they remain key markets in which to do business; while burgeoning population growth has led to rising occupancy costs in emerging markets in South America and Asia," said Glenn Rufrano, President and CEO of Cushman & Wakefield.
Subdued business confidence affected prime rental performance within EMEA as activity in the region continued to be sluggish for the third consecutive year. Rental growth was largely nonexistent, particularly in Western Europe, where figures barely changed over the year, lifting by 0.3%. The Central and Eastern Europe (CEE) region outperformed Western Europe in terms of rental growth, albeit with a minimal increase of only 2%.
London's West End remained the most expensive location in EMEA for another consecutive year. Its solid rental growth, driven by a lack of high-quality space and coupled with relatively steady demand, particularly from the technology sector, ensured competition for prime office space has continued. Prime rents increased towards the end of 2012, pushing London not only to the top of the EMEA regional ranking but also for the first time since 2008 to first place in the global ranking as the most expensive office location worldwide.
Barrie David, Senior Research Consultant in Cushman & Wakefield's European Research Group, said: "The eurozone debt difficulties continued to have a destabilizing effect on business confidence, leading to mostly flat rental performances across the EMEA region. Occupiers remained uncertain with the primary focus concentrated on cost-cutting strategies such as lease renegotiation or moving to more efficient space."
Norway also saw a strong economic performance, which in turn spurred on robust occupier interest and increasing rents (11% rental growth on 2011).
Additionally, Kazakhstan (22% increase) and Turkey (13% increase) saw burgeoning demand from multinational companies, with Almaty and Istanbul becoming increasingly important regional business and financial centers.
Source: Cushman & Wakefield