London has lost its status as the world's most expensive office location for the first time in nine years according to the new 'Office Space Across the World 2009' report from global real estate advisor Cushman & Wakefield.
Tokyo is now one of the world's most expensive office locations.
Hong Kong and Tokyo are now the world's two most expensive locations relegating London to third place. 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% in 2008, the much larger 23% fall in London's West End pushed occupancy costs down further to 1,403/m²/year. The cost of space in Tokyo now stands at 1,649/m²/year, a fall of 19% in 2008.
'Office Space Across the World 2009' compares office occupancy costs in 202 key locations in 57 countries around the world. Of these 202 locations, 58% showed rental growth in 2008, 26% saw stable rents and 16% showed a rental fall (compared with only 1% in 2007). Office rents globally rose on average by 3%, significantly below the 14% achieved in 2007 and the lowest growth rate since 2004.
South America was the best performing region with rental growth averaging 12% for the year. Western Europe was the poorest performing region with average rental growth of only 1%.
The impact of the global economic downturn has been felt in all markets although some were better placed to withstand declining occupier demand for space. The expansion of financial institutions, particularly the hedge funds, have driven up rents in London's most prestigious West End market for the last few years but it has now felt 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.
Dublin has fallen out of the top 10 for the first time in three years. It is down to 15th position from ninth with annual occupancy costs standing at 620/m²; this includes a decline in rents of 13%. Dubai, however, has risen from eighth to fifth place with rents increasing by 7%. Damascus in Syria is a new entry for 2009 at number eight.
John Siu, General Manager, Cushman & Wakefield Hong Kong, said: "Although rents in Hong Kong fell, the drop was not as severe as witnessed in other leading cities such as Tokyo or London. 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."
Richard Middleton, Executive Managing Director, Cushman & Wakefield Greater China, said: "The success of the China market is due, mainly, to strong demand over the first half of 2008. This slowed quickly in the second half as development plans were delayed; however, many have since resumed construction.
"Recent reports show a re-emergence of tenant